Using Volatility to Trade IBM Using Options One of the hallmarks of an option based trading approach is the ability to accommodate various market conditions by varying the specific construction of your option trade in order to maximize the probability of success. In order to form a logical basis for trade selection, it is best to think in terms of...
Using Options to Trade Apple (AAPL) Earnings Trading Options Ahead of Earnings Reports and News Events Trading stock around the times of earnings releases is a notoriously difficult operation because it requires accurate prediction of the direction of price movement. Wrong predictions can expose the trader to substantial loss if large unexpected moves occur against his position. Because of the...
Option Greeks: Diving into Delta Options can be terribly confusing for the trader first encountering them. One of the most confusing concepts to understand is the interplay of the three primal forces of options- price of the underlying asset, time to expiration, and implied volatility. The impact of each of these three factors on any given option position can be...
The Passage of Time Can Lead to Profitability for Option Traders Understanding Theta (Time Premium) In Your Option Trading Most of you are aware of the options Greek Delta, which deals with the change in option price with grard to changes in price of the underlying. Today I would like to examine some of the practical details surrounding the second...
Volatility Arbitrage Trading Implied Volatility and News Events through Option Spreads For option traders it is vital to know how implied volatility (IV) affects the price of an option. Many times traders get frustrated about losing in a position when they were directionally correct about the expected move. The price of an option is derived from several inputs into a...
Using Standard Deviation & Probability to Trade Options We've previously discussed the ability to use implied volatility to calculate the probability of a successful outcome for any given option trade. To review briefly, the essential concepts a trader must understand in order to make use of this helpful metric include: 1. The prices of any given underlying can be considered...
The desire to be perfect cost me plenty of money in the early days of my trading career. Why? Because a perfectionist cannot take a loss, so small losses can easily turn into bigger losses for the trader who is not able to admit being wrong. Plus, the trader will try to book a profit too soon to...
Following the Big Players Using Dollar Weighted VIX Put Call Ratio Let's start by defining what does Put/Call Ratio mean, what kind of information we get from it, and how to use that information. We will look at the difference between a simple put/call ratio and the dollar weighted put/call ratio. * Simple Put/Call Ratio (PCR): The ratio of...
Cheating with Partial Hedges As someone who makes a living trading options, you would think that finding a way to hedge my portfolio using options ought to be second nature by now. In fact, I have always placed more emphasis on offense than defense, not because I underestimate the importance of risk management, but because I generally find the opportunity...
A Different Approach to Apple Using Options Apple (AAPL) is one of the most actively traded stocks currently. For the trader who trades only stock, there are two major difficulties in executing trades in this stock: 1. It is breathtakingly expensive. 2. It exhibits periods of neck snapping volatility exposing the trader to substantial losses if he gauges the direction...
