4. General Considerations

This book discusses various strategies for dynamically managing structured option positions. The word "structured" has important meaning in this context. All option positions, regardless of their complexity, have a structure that dictates how they behave as underlying prices change and expiration approaches. Complex positions built with long and short components can be confusing to manage. A call ratio, for example, can be net long one day and net short the next if the underlying rises quickly. Even simple trades can undergo surprising changes in character.

Understanding the behavior of an option position with regard to time decay and changes in the price of the underlying is just the beginning. You must take into account a number of other factors when establishing a new position and throughout a trade's life cycle. Following is a brief list of some of the most persistent issues: