Spread Trading: An Introduction to Trading Options in Nine Simple Steps

CHAPTER 42

Lifting the Fog

“What’s the problem?” “Well, how do I remember all these trades? How do I organize them in my mind? Right now they’re just a jumble of terms—bull puts, bear calls, bear puts, bull calls. I can’t keep them straight. I can see the pieces, but I can’t see the whole picture. I can’t make sense of it all. It’s like I’m in a thick fog: I know the world makes sense, but that doesn’t help me much if I can’t see it.”

“I feel the same way,” said Shorty. “I can’t see the thread that would help me remember what a bull put is. Or a bear call. Or any of them. Right now, it seems like I’ll have to look up the definition every time someone uses one of those terms. I hate that. I’d like to understand what’s going on so that I can remember what the terms mean intuitively, or at least be able to figure them out.”

“I know what you mean,” answered Nate. “When I learned all this, I learned it through constant exposure and brute force. It was hard. But I think we can make it easier for you. Let me begin by asking you some questions, okay?”

“Sure.”

“First, what trend do we normally associate with a call instrument?”

“Well, I would say a bullish trend,” answered Lon. “I know we can use a short call to optimize other trends, but calls are often thought of in terms of long calls, and long calls optimize bullish trends.”

“Good. So it seems logical to put the terms bull and call together, doesn’t it? It makes sense that we’re going to use calls to optimize a bullish movement, right?” ...