Assume a Frictionless Market

Loading...
Loading...
I think it's important to remind my readers of a basic premise when I discuss various option strategies. I assume a frictionless market. What do I mean by that?

* I take no account of commissions. I have no idea what your transaction costs are.

* I assume liquidity. That means that I assume equal ease of entry into a position as well as exit from a position. Oh, and by the way, ease of exit is far more impor
tant than ease of entry.  I assume a narrow bid/offer spread as well.

* I assume full execution of all orders. Meaning that I do
not account for partial fills or slippage (being filled at a different price than intended). Don't forget, to avoid  this I always counsel using limit orders and never market orders.

* I do not factor in your cost of money. By that I mean that I assume you may borrow and lend money at the same rate.

* I take no account of tax consequences. Obviously, I have no way of knowing your tax bracket and taxation is very far from my area of expertise in any case.


Of course, in real life the markets are anything but frictionless. None of this makes the strategies you read  less illustrative but honesty compels me to remind everyone of my assumptions.


...
Loading...
Loading...
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...