Advisors Option: Spreads with Wings

Options 101: We have discusses collars and verticals on this show in the past, and now it’s time to explore some of the more elaborate option spreads that many advisors/asset managers may be familiar with - particularly spreads with wings.

What is a butterfly? When would an advisor want to use a butterfly spread?

What is an iron condor? How does it differ from a butterfly? When would an advisor want to?

What is an iron butterfly? How does an iron fly differ from an iron condor and a standard fly?

Listener Mail: So, what do you want to know?

Question from Tom S. - How do dividends impact option prices? Let’s say my clients own a put on a stock and it declares a substantial dividend. Do they collect all of the profit from the stock drop in the price of the put, or is there some sort of change made to the strike price to reflect the new value of the stock?

Question from TheNewt - If I own a call on a stock and it declares a special dividend, do I collect the dividend?

Question from Mike Z., Tampa, FL - I would like to gain some volatility exposure in my portfolio. Which volatility products should I recommend to my financial advisor at our next meeting?

Industry Buzz: Attention Chicagoland Financial Planners, Insurance Agents, Certified Public Accountants, and financial services practitioners! Early bird registration for the Financial Planning Association of Illinois Fall Forum ends in a few days. Don't miss our awesome Hyatt Oak Brook event September 19th. For more information click on the link below and look for Fall Forum 2013!