This Is a Rough Time for Many Option Traders

Posted on Thursday, January 3, 2019 at 4:17 PM

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 declined yet again. How is that for volatility? If you are swing trading options, these wild swings cannot be very helpful.

Just think about it: You have a bearish trade on and after one day it is doing pretty well making money. You don’t have any intention to sell it after one day, but the next day comes and the market reverses, putting the trade back into negative territory. You don’t want to be forced to take profits for a position you have held for less than a day, but this market is so volatile it sometimes forces a swing trader to do so.

With the market being so volatile, option prices have increased as implied volatility has risen. So if you do not like to sell premium as an option trader, it is a little more difficult to find trades suitable for these conditions. In my Group Coaching class, we have been buying time spreads (calendars and diagonals) to take advantage of the IV skews that have been in abundance for option traders.

Of course if you like to sell premium as many investors do with options like cash-secured puts and covered calls, this market is good for premium. The only bad thing is that stock prices have dropped as premiums have increased. The bottom line is, if you are not comfortable with selling premium, day trading or using strategies you are not familiar with, then don’t trade. No one says you have to.

John Kmiecik
Senior Options Instructor
Market Taker Mentoring, Inc.

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