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can someone please explain what does this quote mean?

SELL -10 VERTICAL $IYR 100 AUG 09 32/34 CALL @.80 LMT
  • what is Vertical
  • what is -10
  • what the 32/34 stands for?
  • what is LMT
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If you don't know what it all means, then I strongly recommend against trying to buy or sell anything in response to this twit. –  Dilip Sarwate Dec 26 '12 at 23:29
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1 Answer

up vote 6 down vote accepted

SELL -10 VERTICAL $IYR 100 AUG 09 32/34 CALL @.80 LMT

1) we are talking about options, these are a derivative product whose price is based on 6 variables.

2) options allow you to create risk out of thin air, and those risks come with shapes, and the only limit is your imagination (and how much your margin/borrowing costs are). Whereas a simple asset like the shares for $IYR only has a linear risk profile. stock goes up, you make money, stock goes down, you lose money, and that risk graph looks linear. a "vertical" has a nonlinear risk profile

3) a vertical is a type of "spread" that requires holding options that expire at the same time, but at different strike prices.

3b) This particular KIND of vertical is called a bear call spread (BCS). Since you are bearish (this makes money if the stock goes down, or stays in a very specific range) but are using calls which are a bullish options product.

4) -10 means you are selling the vertical. +10 means you are buying the vertical.

A "long" vertical is initiated by buying an option closer to the money, and selling an option at a higher strike price. This would be +X

A "short" vertical is initiated by selling an option closer to the money and buying an option at a higher strike price. The quantity would be -X

5) 32/34 stands for the strike prices. so you would be selling 10 call options at the 32 strike price, and buying 10 call options at the 34 strike price, both options expire in August

6) LMT stands for limit order, and $.80 is the limit order price that is desired.

OPENING a vertical spread requires knowledge of options as well as how to send orders.
MANAGING a vertical requires even more finesse, as you can "leg-in" and "leg-out" of spreads, without sending the entire order to the exchange floor at once.

There is much to learn.

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+1 especially for the last point that "there be dragons." –  George Marian Dec 27 '12 at 1:13
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