From Theory To Practice - April 19, 2021 - It's Always a Game of Extrinsic Value

published 3 weeks ago by tastytrade, Inc.

As out-of-the-money premium sellers, it’s easy to see that extrinsic value is a big part of our plan. Effectively, we’re selling options in the hopes that any directional moves in the stock will be muted, and we can profit from the passage of time. But interestingly, this same goal applies to any Vertical Spread, where we were the premium buyer. In order to achieve maximum profit on the position, we need the extrinsic value to come out of the options.

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