Implied volatility is the forecast of a likely movement in the underlying. Keeping it simple, implied volatility is how options are priced. When IV is higher, option prices are higher and vice versa. Generally, when the market moves lower, option prices and IV increase as demand goes higher for protection or a
All technical tools perform at times, but none pay off all the time. The trick to technical trading is to identify when an indicator is likely to detect a high percentage winning trade. I have researched many charting techniques, indicators and tools in my 30-plus years in the commodity and stock markets.
Option vega, like option gamma, is one of those option greeks that often confuse option traders. But it does not have to be that way. Below we will break down the dynamics of vega so that even the most basic of option traders will have a clearer picture of this mystery greek.
There are no trading tools, indicators or patterns that pay off every time. However, they all have their moments. Good traders know when probabilities have shifted to favor a trend style trading strategy or a mean reversion (counter trade) approach. There are two essential technical indicators traders utilize to create strategy. One
Today we’re going to look at some of the top option trading strategies for any market condition. As I’m sure you have noticed, the market can be a very unpredictable beast. At times it can leave you scratching your head and crying. However, one thing is for certain: There is a strategy
Spend time with a broker or pit trader from the era when all trades were executed in a trading pit at an exchange and you will learn about the open outcry and the information it provides. Pits were created to facilitate trade. To an untrained eye a trading pit looks like a
Support and resistance are levels on a chart that tend to keep the underlying from moving through those levels. Support keeps the underlying from moving lower and resistance keeps the underlying from moving higher. Generally, two or more levels can be potential support and resistance but sometimes once is enough like a
One of the more difficult tasks traders face is choosing areas where market extremes (high or low) are likely to form. Pinpointing ideal entry and exit levels is possibly the hardest but most desired task we face. In the industry, buy areas are known as support and sell zones are called resistance
There are only four things to do as an option trader that do not involve a spread. Most option traders know that they can buy a call option as a bullish strategy and buy a put option as a bearish strategy. But many option traders have never looked at selling naked calls
Market sensitivity is often discovered through commodity chains. In the MTM Daily Edge sessions, we examine many markets for patterns that typically precede the start of trends, as well as the setups that often occur when a trend is near exhaustion. Pattern recognition and technical analysis are a big part of many
It goes without saying that understanding options and various option strategies is crucial for an option trader, but market analysis is also critical in option trading. Smart traders and investors use diligent market research to get a better grasp of the market, which can give them an additional edge as an option
On the first Friday of each month, we get a look at the recent employment data and how the report affects the stock market. These numbers are frequently the catalysts that start trends and even end them. Job creation is an essential sign of a healthy economy. The Federal Reserve has a
When I think of collars as an option trader, I think of sleeping better at night. Option collars can potentially protect a stock position in case the position declines. Like everything that involves options, there are trade-offs too. Collars cannot work miracles, but they do have their benefits as well as their
Fundamentals move markets; technicals record history and illuminate patterns. Great traders incorporate both schools to improve analysis of market sentiment. Professional traders refer to the economic calendar for events/reports that have the potential to alter a trend or start a new one. Recognizing the immediate reaction following an unexpected event is essential
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
