I make no bones about it: The calendar spread is one of my favorite option trades. Like many option strategies, it can be used short term and long term as well as for a bullish, bearish or neutral outlook on the underlying. That is hard to beat in my opinion, but let’s
Traders strive to sell at the extreme high and buy near the low of a move. Setting precise entry and exit levels is a difficult task, but it is a skill that can be honed. In this business a long position or buy level is recognized as support and a short position
Trading options can be a long and frustrating journey without discipline and solid understanding of the option greeks, including option theta, and how to use them in your trading. Most option traders know there is a time component to options. But surprisingly, many do not have a firm grasp of what that
As an educator I make it a point to help students develop a solid fundamental and technical foundation. Years ago, I started my own “traders toolbox” that is now filled with facts, axioms, statistics and technical indicators. I refer to my toolbox when trading and creating strategies. My first experience in the
Iron condor strategies involve combining two credit spreads or two debit spreads. While the strategies themselves are not complicated, managing the positions can be for option traders without the proper education. Iron condor strategies can be modeled out to be neutral or directional trades depending on the outlook. Trading iron condors can
Professional traders use logic and math to design strategies, and Average True Range (ATR) is a critical component. Traders often use ATR to boost profit projection as well as define risk. It is imperative to identify benchmark ranges (ATRs). This vertical indicator (high minus low) may reveal when a market has reached
There are three ways based on strike prices to buy and sell options with varying degrees. An option can be at-the-money (ATM), in-the-money (ITM) or out-of-the-money (OTM). But what makes an option ATM, ITM or OTM? Below we will answer that very question and show a few examples that should make the
During the past couple of weeks, several people have asked me about using VXX as a portfolio hedge. Maybe people feel things are getting a little toppy with all the Fed intervention and the many other harbingers of potential danger hanging over the markets. I wanted to write about this subject because
Are there such things as option trading success secrets? That can be debated, but what you should know is that there are ways to improve your odds for success in option trading. Are they necessarily a secret? Probably not. However, most option traders don’t do certain things that could enable them to
Moving averages are the most popular directional gauges. They are typically the first technical indicator in the novice trader’s toolbox. Many professional traders rely on them as well. Typically, the directional signals come when a short-term MA crosses a long-term MA. The problem with this method is that by the time the
Although it will always be debatable which is the most important option greek, many option traders point to option delta. This is understandable, considering most new option traders become acquainted with delta first. However, you cannot dismiss option gamma, which is sometimes referred to as a derivative of a derivative. Option Delta
Futures traders have access to markets nearly around the clock. Stock and exchange traded fund (ETF) traders must deal with gaps in time and price when there is no market to trade or a huge drop in liquidity of those markets that do trade overnight. When liquidity is low, bid ask spreads
Option delta is probably the first option greek many option traders learn. When I first heard and learned about the power of options, I was intrigued. Instead of buying shares of stock I could purchase a call for far less money and profit if my outlook is correct? Sign me up! There
As traders we endeavor to catch a trend early and hold that position until an objective or target price is met. Catching a trend is difficult enough; squeezing the last dollar out of a trade is even harder. Stop loss orders are used to set risk. As another option they can also
An option butterfly spread trading strategy is very versatile because it can be used in multiple ways to potentially profit and also remove or reduce risk. As usual, it is nice to have options with your option strategies. Below we will talk about how to create a butterfly spread and how time
When markets begin to trend, they frequently do so with fast and furious moves. It’s important to track market correlation, price targets and profit potential. Quite often there are clues or patterns that occur prior to a breakout and just after one. It is a trader’s goal to recognize that critical moment
Knowing and understanding the option greeks is pivotal for your potential or continued success as an option trader. Listed below are some of the finer points of delta, gamma, theta and vega. Realistically, each could have its own book explaining how it works and its ramifications, but in this options greeks quick
To recognize market trends early is every trader’s ambition. The earlier you catch a trend, the more profit potential grows and risk decays. Timing this phenomenon requires a breakout strategy. Entry at the beginning of a sharp vertical move (trend) is the goal. Breakout Setup Timing is the ideal entry price and
Technical analysis can be a big part of your potential success even as an option trader. I truly believe this and talk about technical analysis every single day in my Group Coaching class. A lot of my education focuses on support and resistance. Often a stock needs to move above resistance (if
Technical analysis is using history to forecast the onset of a trend or determine when a trend is nearing an end. Technical analysis and indicators are also used to improve entry and exit levels. Fundamentals, or the forces of supply and demand, earnings, inflation, weather etc., move markets. Technical analysis is most
A topic that is brought up more often than you might think in my Group Coaching class is buying outright call options and put options. When option traders first learn about trading options, they often only consider buying call options for a bullish outlook and put options for a bearish outlook. I
Options involve risk and are not suitable for all investors. Before trading options, please read Characteristics and Risks of Standardized Option (ODD) which can be obtained from your broker; by calling (888) OPTIONS; or from The Options Clearing Corporation, 125 S. Franklin St., Suite 1200, Chicago, IL 60606. The content on this site is intended to be educational and/or informative in nature. No statement on this site is intended to be a recommendation or solicitation to buy or sell any security or to provide trading or investment advice. Traders and investors considering options should consult a professional tax advisor as to how taxes may affect the outcome of contemplated options transactions.
Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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