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The Market Taker Take: Option Trading Blog

A Reminder to Review Your Trades

I have mentioned this before and will continue to mention it as much as I can: Please record your trades and review them often. Simply put, there is no better way to see what you are doing wrong and doing right. To me, it has always been an eye-opening experience to go

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Trading Time – How to Read Open and Close Clues

Monitoring the trading time of day when extremes (high and low) are made can be helpful when timing entry and exit of a position. Liquidity is king. Large orders from professional traders are likely to be executed when volume is at a peak. The first hour of trade is frequently the highest

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Traders Often Need to Be Reminded

Well over a year ago, I wrote about several of my favorite sayings that of course apply to trading. Well this is a short blog to remind everyone how important this one particular saying is to me and most likely to you. With the volatile market we have encountered over the past

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Don’t Forget About Positive Theta

Here is something to think about next time you are bullish and are considering a bull call spread as one of your options as an option trader. Many times, moving the spread in-the-money (ITM) makes sense from a positive theta perspective. Let’s take a look at a recent trade idea we covered

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Key Economic Sector and ETF Watchlist

Most days in futures class we review direction indicators for the major sectors of the economy. These sectors often correlate either directly or indirectly. For example, a rise in interest rates may affect currencies, which might have an impact on stocks or precious metals and energy. A small move in one of

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This Is a Rough Time for Many Option Traders

The gist of this blog is you don’t always have to trade. Market volatility has been crazy as of late. The market had its most bearish Christmas Eve ever, and then on the next trading session the Dow closed up over a thousand points. And then the session after that, the market

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Protecting Profit During Volatility

This year has been quite volatile, possibly the most volatile ever for stock indexes. The first and fourth quarters saw average day ranges that spanned nearly twice the norm. Day ranges have been closer to the length of a historic average week. When the moves are so extraordinary, risk doubles, as does

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Option Trading Is Always a Trade-Off

Here is just a quick reminder that everything you do has consequences in option trading. In other words, everything is essentially a risk/reward trade-off. Just think about it for a second: If you give up potential profit, you get a better risk/reward and vice versa. Let me go through an example with

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Watch Trade Truce’s Impact on Price Action

Last weekend Argentina hosted the G20 summit, which comprised 20 leaders from around the globe. There were three agenda priorities: the future of work, infrastructure for development and a sustainable food future. Trade and tariffs may not have been listed as priorities, but they certainly were. When the commodity markets opened Sunday

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Neutralizing Positive Option Vega

If and when this market decides to move higher, implied volatility and option prices are destined to come back down. If you have an option position with positive vega, this might be a bit concerning. If it is, and it probably should be, there is one way you can offset that risk

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How to Gauge Trade Patterns

In the first of the two SPY charts below, we see a steady rally in 2017 where the average month range spanned about 8 points. Then in January 2018 the range more than doubled the average bringing on an overbought signal. It was the last thrust higher that ended the nearly nonstop

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Comparing Bearish Vertical Spreads

As an option trader, vertical spreads are most likely an integral part of your arsenal as a swing trader. What makes them so worthy of your consideration is the wide variety of risk/reward scenarios depending on one’s outlook. Let’s do a quick comparison of two verticals with bearish outlooks. Verticals One of

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How to Select Strikes

Recently I have been reeducating myself with option strategies. It has been over 15 years since I executed an option order at the CBOT. After joining the MTM team, I viewed many of the teaching videos and listened to Dan and John K. talk option strategy with students. Thus, I am eager

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Consider the Close of the Market

When the market closes, there is never a guarantee of whether it will open higher or lower the next session. If we knew that, trading would be a whole lot easier. But there is something I look for on a constant basis that I have found helps me tremendously. It is to

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How to Read Market Sector Sensitivity

In the daily futures class, we search many markets for patterns that typically precede the start of a trend, as well as the setups that often occur when a trend is near an end. Our approach to trading is determined by pattern probabilities and relationships among commodity sectors. Recently the stock market

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Support and Resistance Works on All Time Frames

Support and resistance are an integral part of how I teach technical analysis to my group coaching students. The general premise is that support and resistance have better odds to hold than be broken. If you keep this in mind as a trader, you can increase your odds for success. But I

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What You Should Know About Vega

We have previously discussed a few things I think you should know about the option greeks. In weeks past, we have looked at delta, gamma and theta, which now brings us to vega. Vega measures the impact implied volatility (IV) has on option premiums. Keeping it simple, for every 1% change in

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Using ATR as a Market Speedometer

At the end of every quarter I make it a point to update a spreadsheet that displays average ranges in most commodities, indexes, ETFs and Dow Jones 30 stocks. This information is crucial when projecting how far a market is likely to move over a variety of time frames. It is imperative

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What You Don’t Know About Theta

As our journey of taking a look at the greeks in a different light continues, we have come upon theta. Theta, for many, might be the easiest to grasp. That being said, here are a couple of things to think about that you might not have realized about this greek. Theta measures

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Top Picking and Bottom Fishing All About Timing

Growing up in Chicago had plenty of perks: a beautiful skyline and parks, plus great food, entertainment and sports. But for the harsh winters, it is my kinda town. After college I had the opportunity to work at the futures exchanges, Chicago Board of Trade and Chicago Mercantile Exchange. My first experience

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How Contract Size Affects Option Greeks

Understanding the option greeks is pivotal to truly understanding and trading options. As I like to say, the greeks are like the controls on a car. They give you an idea of how the trade should perform based on the underlying, time and volatility. But one thing about the greeks that is

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