Posts Tagged ‘trading options’

Must Have Options Trading Strategies For Success Fundamentals

Wednesday, September 15th, 2010

The activity of stock market trading is exciting but it can also be somewhat complicated. This is especially the case when option trades are involved. These types of investments represent the options offered by actual stocks, not the stocks themselves. Investors do not own the stocks, they own the right to purchase or sell a specific amount of shares if they desire. Using option trading strategies help those involved in options contracts to make the most money.

Before getting to the option trading strategies part, it is helpful to make a distinction between options and futures, since these two items are commonly confused. Futures and options are both leveraged derivatives and they are both used to hedge against risk. The basis of each is a buyer-seller agreement regarding an underlying asset. Each deals with a specific date in the future and has pre-established prices.

The differences begin at this point and one pertains to the fact that the purchaser of a futures contract is required to pay a portion of the agreed-upon price at the time the futures contract is purchased. This can be equated to the act of making a down payment. In the case of option trading strategies, the purchaser pays a premium fee when the options are purchased. A party involved in purchasing or selling a futures contract must fulfill his or her obligations when the contract expires. Those who purchase options contracts do not have to exercise their right to purchase the stocks. There are option trading strategies for both options and futures.

In terms of option trading strategies, options investors can profit when the prices move up, down, or even sideways. Covered call strategies fall at the conservative end of the strategy spectrum. An earnings strategy involves tracking earnings using charts and determining parameters for investments that will be profitable. A naked calls strategy is used by advanced traders, providing them with the ability to make profits using information from earnings announcements and by engaging in complex techniques.

Option trading strategies like covered calls and naked calls, as well as the earnings strategies, allow investors to take advantage of all types of stock price movement. Using the organized and consistent approach within option trading strategies allows investors to compare stock options to determine which will be most profitable. As the investor gains more experience, different techniques can be used in combination or with various types of options.

For a list of Options expert Alex D. Richard’s proven Option Trading Strategies visit wallstreetoptiontrading.com. They provide a stock market guide with illustrated step by step easy to understand instructions for profitable Option Trading Strategies that work.

Tags: , , , , ,
Posted in investing | No Comments »

Cash-Flowing With Iron Condors

Saturday, July 17th, 2010

While the volatility is dropping and the market is in an uptrend, one might believe that this is prime time to trade the Iron Condor. This is because the Iron Condor is a negative Vega option spread and it benefits by a drop in the volatility.

In fact most condor traders have been making money over the last few months doing very little work at all. This is why it’s so great at times with this type of income spread. Sometimes we have to do very little at all. If the underlying simply trends within a tight price range, then the Condor and cash flow the market nearly on a daily basis.

This style of making money is really like living a dream. Just imagine how fun it would be to make money while you are sitting by the swimming pool and enjoying your favorite cocktail. It’s wonderful when the stock market gives us this opportunity.

One thing I love about the San Jose Options methodology to the Iron Condor, is that they have a more conservative approach to them. While other courses teach an aggressive approach, they are also taking on much more risk than I am. They have to adjust much more often too and this causes a problem in a whipsaw market. Aggressively trading condors will lead to more adjustments, more stress, more headaches and less returns overall.

Over the past couple months, I’ve been making 10% on this strategy very easily, and believe me, I haven’t had to do very much at all. I just put the trade on and let my money work for me. The way I used to trade, I would have had to execute several adjustments, but with my new trading technique, the market never hits my adjustment points one single time. So needless to say, I’ve really been enjoying the stock market lately.

If you want to succeed on the stock market with options, make sure you get a trading education.

Tags: , , , ,
Posted in stock market | No Comments »

Trading Options and Volatility

Tuesday, May 11th, 2010

In this article we’d like to explain adjustment beliefs which can be practical in running an options account. This individual strategy can be practical to each and every type of option spread such as the Credit Spread, Iron Butterflies, Iron Condors, Double Diagonals, as well as others.

As this is being written in October of 2008 the VIX is as high as it’s been. Look at a 5 year chart and see where we are. This level of volatility has made options quite expensive. Before we make any adjustments to our portfolios, we always think about the volatility. Where is it now and where is it going? Should we be buying or selling options at this moment?

A very common mistake that option traders make is buying or selling options at the wrong time. If we buy options when the volatility is at a high, we are entering a trade with odds against us. Option traders that do this don’t realize why their options lose value so fast. Every option trading adjustment should be made by thinking of the option Greeks and volatility. We really need to understand these fundamentals to succeed in the options market.

LOOKING AT A HYPOTHETICAL OPTIONS POSITION

Let’s say that we have on an Iron Condor, and the market has been in an uptrend for two weeks. If this is the case, then we might be looking at an adjustment right? We are getting close to our short strike, and we need to do something to manage our risk. In this situation the IV of the asset has probably been dropping, since the IV normally moves the opposite direction of the underlying being traded. So, what do we do? Well, if the IV is at support and the technicals indicate that it might rise again, then we’d be looking at doing a positive Vega adjustment.

There are many option strategies and morphing concepts, so how can we make a good decision on what to do in this case? A critical step in the decision making is graphing the current volatility inside the options market. We usually use the VIX and RVX. Is the volatility bottomed and increasing? Is it at a peak and coming back down? Is it barely moving? What is happening in the options market and where is the volatility in relationship to its history? We additionally need to study the technical analysis of our traded asset. Where is the price headed? We have to comprehend Vega and the other option Greeks to accomplish high probability changes to our positions. In today’s example, if the volatility prediction is up, it would make sense to add some positive Vega to our portfolio.

There are many positive Vega option strategies, but some of the most common ones are Debit Spreads, Broken Wing Butterflies, Short Condors, Short Butterflies and Calendars. In our options mentoring course we cover them in great detail.

To conclude, if the stock market moves against you when you are in an option spread, then always study the IV of your underlying asset. Knowing what is going on with volatility can really help you make better decisions on managing your portfolio. This will definitely reduce your exposure to risk while increase your chances of being a profitable trader.

Learn more about Option Trading and Volatility. Stop by San Jose Options Mentoring and receive a FREE 45 MINUTE VIDEO on Option Greeks and see what this new knowledge can do for you.

Tags: , , , ,
Posted in stock market | No Comments »

Options Backtesting Software

Thursday, March 11th, 2010

Hello there, I sure hope your Option Portfolio is growing. This is the second article in a series of six articles. This also includes a video for each article for you to follow. If you want to be successful in learning to trade options, you will need to watch all six videos.

A very important step in learning to trade options is to spend a lot of time back testing your trades. There are just a few option software programs on the market at this time that can help you with this task, but learning to trade without costing you a dime is worth your time. I learned a lot by using Optionvue and/or Think or Swim to back test my option trades. These two software bundles have been very good, but now San Jose Options has just released a new type of back testing tool called the “Options Toolkit.” With this back tester you will save a lot of time in comparison to any other options testing software.

It would take me one hour to back test one year of trading a Condor with the Optionvue software. When I used Think or Swim it would be a little faster, but I would get less information. Now, by using “Options Toolkit” I actually gather more organized data in about 2 seconds to back test one year of Condor trades. It’s really a great program!

Another step in finding success is simply trading for many years. We all call it “experience”. The reason behind this is the stock market is constantly changing. In order to see all sides of the market, we need to trade for many years. There is no other way to gain this kind of “experience”.

Paper trading is the perfect way to learn how to trade options. It is very easy to start. You can open up a free paper trading account with Think or Swim and/or almost any other options broker. You will need to practice and this gives you a good, safe way to do that. It may be difficult at first, but you need to paper trade for at least six months to a year; this is very important. Remember, it is very important to gain experience over time, seeing all sides of the market, and paper trading is one way to gain this experience without risking any money.

Finally, you should keep about 25% of your capital in cash. This is so very important! All of your trades, even the best option trades, will always require adjustments. You will need extra cash in order to make these adjustments. It is very dangerous to use all of your spending money in your trading account, for when it is gone, there is nothing to make adjustments with. Every option trader will leave a lot of money in cash so he can make those adjustments. You will need cash to manage your account and to lock in profits as needed. Keeping cash on hand helps you to be a successful trader.

Looking to find the best deal on Options Backtesting Software, then visit www.sjoptions.com to find the best advice on Trading Options and education.

Tags: , , ,
Posted in stock market | No Comments »

Be Warned about the High Risk Iron Condor Before it’s Too Late

Sunday, November 8th, 2009

Hi everybody and welcome to San Jose Options. In this demonstration we will be discussing the dangers of Iron Condors. The Condor is an excellent income strategy, but there are ways to do it correctly and ways not to do it. The purpose of this article is to make every option trader aware of the risks that are involved in trading option spreads if you do not know what you are doing. In particular, trading iron condors close to expiration is very high risk and can lead to catastrophic losses to your trading capital.

In this article you’ll find an embedded video. This video is a good demonstration of how NOT to trade Iron Condors.

Specifically, this video is on trading an Iron Condor on the SPY with less than one month to go for expiration. The problem with this strategy is that the underlying symbol does not have very much time or wiggle room. Often times the option trader will bring his trade into the last week of expiration, and the underlying will be right next to the short strike which is extremely dangerous. This is a typical Iron Condor that is taught in 99% of the courses on the Internet. This is the Iron Condor that can ruin your life.

As this option trade nears expiration it becomes more and more risky. The Delta on the position can change extremely fast because the Gamma is extremely high. This means that the trade is outrageously volatile as it gets closer to expiration, and again, if you are near the short strike just a few days before expiration date, then you will be extremely stressed because you will be in a horrible situation. Please watch the video at the 6 minute mark to see what I am talking about.

So to conclude, I hope you have learned something about the Condor from this article. Trading them into expiration might appear to be easy money, but if you do it long enough, you’ll find that it’s a very stressful way in deed to trade options. It’s one of the riskiest trades you could ever do. Now, if you are interested in learning how to do this trade correctly, then by all means give San Jose Options a visit. They have developed one of the safest ways known to trade this option strategy.

Learn the Secrets to Trading the Iron Condor at San Jose Options Trading Course.

Tags: , , , , , , , , , ,
Posted in stock market | No Comments »

Option Trading Adjustments Based on Volatility

Monday, October 12th, 2009
by Donald Scott

Within this article we’d like to discuss management tactics which can be beneficial in the organization of an options account. This important concept can be functional to each type of option spread such as the Condors, Calendars, Butterflies, Diagonals, and the rest.

At the time that this article is being presented (the latter part of 2008), the VIX is presently in its higher range of the previous couple years, making options inflated in value. So while making adjustments nowadays, each trader must make it his duty to know where volatility is and forecast where it is leading to. Should we acquire expensive, inflated options or do we persuade somebody else to buy them? What is the latest volatility forecast on the major markets?

A very common mistake that option traders make is buying or selling options at the wrong time. If we buy options when the volatility is at a high, we are entering a trade with odds against us. Option traders that do this don’t realize why their options lose value so fast. Every option trading adjustment should be made by thinking of the option Greeks and volatility. We really need to understand these fundamentals to succeed in the options market.

A STUDY IN TODAY’S OPTION MARKET

Let’s say that we have on an Iron Condor, and the market has been in an uptrend for two weeks. If this is the case, then we might be looking at an adjustment right? We are getting close to our short strike, and we need to do something to manage our risk. In this situation the IV of the asset has probably been dropping, since the IV normally moves the opposite direction of the underlying being traded. So, what do we do? Well, if the IV is at support and the technicals indicate that it might rise again, then we’d be looking at doing a positive Vega adjustment.

There are many option strategies and morphing concepts, so how can we make a good decision on what to do in this case? A critical step in the decision making is graphing the current volatility inside the options market. We usually use the VIX and RVX. Is the volatility bottomed and increasing? Is it at a peak and coming back down? Is it barely moving? What is happening in the options market and where is the volatility in relationship to its history? We additionally need to study the technical analysis of our traded asset. Where is the price headed? We have to comprehend Vega and the other option Greeks to accomplish high probability changes to our positions. In today’s example, if the volatility prediction is up, it would make sense to add some positive Vega to our portfolio.

There are many positive Vega option strategies, but some of the most common ones are Debit Spreads, Broken Wing Butterflies, Short Condors, Short Butterflies and Calendars. In our options mentoring course we cover them in great detail.

To conclude, if the stock market moves against you when you are in an option spread, then always study the IV of your underlying asset. Knowing what is going on with volatility can really help you make better decisions on managing your portfolio. This will definitely reduce your exposure to risk while increase your chances of being a profitable trader.

About the Author:
Learn more about Option Trading and Volatility. Stop by San Jose Options Mentoring and receive a FREE 45 MINUTE VIDEO on Option Greeks and see what this new knowledge can do for you.

Tags: , , , ,
Posted in stock market | No Comments »