Options Trading in Extremely Volatile Markets
The recent stock market crisis (2008) not only rocked the financial system and the world economy but also the pockets of countless options traders all over the world. Options traders who used to profit in the years prior to this market crisis broke their bank as none of their options strategies seem to work in this market anymore. So what is it about extremely volatile markets and how should one profit through options trading under such conditions?
Extremely volatile market conditions not only produce unpredictable short term stock price swings but also open up the bid ask spread of individual stock options due to a lower liquidity and profiteering by market makers. This combined effect not only made it doubly hard for options traders to make a profit. Volatile options strategies, supposed to be meant for such conditions due to their ability to make a profit when the market moves up or down strongly and their ability to profit from an increase in volatility, also failed to produce any consistent profits due to the higher premium outlay and wide bid ask spreads, soaking up most of the profits. Unexpected rallies also crunch volatility to the extent of producing losses through decaying the premium of long legs at express speed. Short term (weekly, monthly) directional options strategies fared even worse as it not only became almost impossible to predict short term price swings but the high premium and bid ask spreads also took most, if not all, of the profits away even if the stock did move in the expected direction.
So what works in an extremely volatile market condition such as this one?
First of all, let’s look at all the different ways to trade options. There are 3 main options trading methodologies; Swing Trading, Position Trading and Day Trading.
Swing trading is a directional options trading methodology that aims to pick stocks that will move quickly and strongly within a short period of time in a predictable direction and then execute bullish or bearish options strategies in order to profit from these moves. As mentioned before, trying to profit from directional swing trading in an extremely volatile market is like swimming against the tide. Not only is directions hard to predict in the first place but the high options premium along with gapping bid ask spread all work against its favor.
Position trading is more complex than Swing Trading as it aims to profit mainly (although there are also position trading strategies that are directional in nature) from volatility or premium decay through putting together several different options and / or stocks in order to produce a hedged, market neutral position. Position trading has produced some pretty profitable results for me in this market crisis as volatility soared and options premiums are high. This puts the disadvantages of an extremely volatile market condition in the favor of the options trader. Such positions include dynamically hedged delta-neutral as well as delta-gamma-neutral positions. Both of these position trading strategies aim to neutralize market movement such that unexpected swings do not affect the position significantly while the position safely takes the high options premium on the short legs into your pockets.
Day trading is an extremely dynamic options trading method where options are bought and sold very quickly within one day in order to profit from the slightest intraday price swing or change in volatility. This strategy was a pretty hard one to profit from in low volatility market conditions as prices doesn’t change enough within a day to produce significant profits. However, day trading becomes extremely profitable in the hands of seasoned options trading veterans in extremely volatile market conditions such as this market crisis as the Dow itself has produced intraday trading ranges of up to 10%! Yes, this is the kind of trading range and price range that cannot be realized in normal market conditions. Day trading often takes the form of simply buying or shorting call or put options and then quickly covering them when profitable. Day trading also avoids the extreme overnight uncertainties that so often catch swing traders by surprise in this market crisis. Sudden overnight good news can often gap the Dow up by a significant amount and closing it over 10% higher. This can wipe out all your profits if you had been betting in the opposite direction overnight. Day trading, however, is extremely risky for beginners in options trading as the price movement is so fast and dynamic that when things happen, beginners may not know what to do and be able to do it quickly. This is therefore not recommended for beginners.
So, there you have, 2 ways to profit from this market crisis through options trading which I have used profitably. Options trading is definitely profitable under any market conditions as long as you use the right method for the prevailing conditions.
Author: Jason Ng
Article Source: EzineArticles.com
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Finding Or Creating Your Own Options Trading System That Works
Stock Options are wonderful! This clever derivative of the equities market has to be one of the most ingenious inventions of modern times. For the trader who can learn how to win at trading options there are many luxuries in life that can be experienced.
Success in options trading requires a consistent approach for long-term success. This statement is not meant to be grandiose, idealistic comment made by some ‘trading theorist’, rather, it is a statement born out of the hard knocks and success experiences of the author and many other long-term, successful trader contemporaries.
This “consistent approach” to options trading can also be called a “trading system”, or an “options trading system” in this case. The term “trading system” is not necessarily confined to a series of computerized “black box” trading signals. A trading system could be something as simple as “buy an option on a stock in an uptrend that breaks the high of the previous bar after at least two days of pull back down movement that make lower lows.” A trading system is simply an organized approach that takes advantage of a repeated pattern or event that brings net profits.
Since an Option is a “Derivative” of the stock you must derive your options trading system from a stock trading system. This means your trading system must be based around actual stock price movement. That said, your trading system doesn’t need to work for all stocks it just has to work for certain types of stocks, certain volatility of stocks and certain price levels of stocks etc… So focus your trading system on certain stocks that have price behavior that is predictable to the net results you wish to abstract from a stock.
You can develop a trading system, a trading approach, and a trading methodology by identifying a price movement pattern (or lack of price movement pattern) or some event that occurs on some sort of regular basis. This means you can trade price behavior patterns on price charts such as: traditional chart patterns, trends, swings, pivot points, boxes etc… or you can trade events that motivate stock price such as earnings runs, post earnings runs, stock splits, seasonal factors etc…. Bottom line to make the maximum profit in options trading you want your stock to move in your favor fast and you want it to move far. Just a relatively small movement in the price of a stock can double your money in options!
There are so many different strategies and combinations that you can trade with options. You can buy calls and puts for directional trades. You can employ call spreads and put spreads to trade directional movements with a buffered risk, and profit. You can sell or purchase spreads to receive the credit of the premium decay by options expiration. You can trade straddles and strangles if you expect a big move but are not sure in which direction. You can also get into ratio back spreads, condors, and butterflies… And if you’re really feeling crazy you can sell ‘naked’ options (just better use a stop loss or you’ll end up like one of my old trading buddies who ran an account to $20 million then gave it all back selling naked options.) You can go to cboe.com for more information on options trading.
Directional options trading systems are the best. Keep it simple, buy calls for and upside trade or buy puts for a downside trade. But this means you need a directional stock trading system in order to trade directional options.
Here are a couple of different approaches for directional systems:
Develop an options trading systems that trades the swings in stock price movement. There are many good swing trading systems available today. We suggest you obtain one. Bottom line with swing trading is that you want to swing trade with the trend. Options brokers these days have advanced order technology that will allow you to enter swing trades based on the price movement of the stock so you don’t have to watch this stock all day. That huge advancement to swing trading options.
Swing trade the day bars. Most swing trading systems are based on daily bars on the stock price chart.
Swing trade the Intra Day Bars! Their other fantastic systems based on intraday charts that pin point swing trading entries.
Develop an options trading system that trades three to six month trends. This is where the big money is. Trading the large trends is where many are able to place larger sums of money to develop their net worth.
Develop an options trading system that trades pivot points. Pivot point trading is arguably the best way to trade options, because price action usually is explosive, and happens quickly in our direction when a trade works. This is good because you can use shorter-term options and leverage yourself a little better. And it’s also nice you can make great gains in five days to four weeks on average so time decay issues become less of a worry.
There are many different directional trading methods you could use to trade options. You need to pick one, work it, and never use more than 10% options position size per trade on small accounts 1% to 5 % max position size on larger accounts. This methodical way of money management trading options is the fastest way to potentially rapid account growth, helping you avoid needless set backs.
Author: Chris Viscaya
Article Source: EzineArticles.com
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Options Trading – Advantages And Disadvantages
Options trading is yet another possibility when it comes to investing and trading. An option is defined as a specific contract that fixes the price of a certain security (i.e. stocks) over a designated period of time, and options trading involves trading on different exchanges such as the New York Stock Exchange and the American Stock Exchange.
When it comes to options trading, it is important to acquaint yourself with the different types of options contracts available. The method of options trading you choose will depend largely on your personality, and you can either choose to go conservative, aggressive, or somewhere in between.
Things to Consider with Options Trading
It is important to understand that if you are a complete beginner to investing, you should not try options trading as one of your first attempts. This type of trading is designed for someone who has some experience.
For those who are experienced at investing, options trading can add some depth. The absolute first thing you need to do is understand exactly what an option truly is – as previously mentioned, an option is a special contract that guarantees a fixed price on a security. However, remember that you aren’t obligated to make the trade even though you are guaranteed that price.
Why Options Trading?
If you decide to trade the options, chances are your underlying goal is not to actually hold ownership of the security. The fact that it is relatively easy to control the risk depending on which strategy you employ is also an attractive consideration.
Also, when it comes to investing, leverage can be a powerful factor, as options allow the investor a certain amount of leverage when trading on a certain exchange. It is possible to gain leverage even though the price guarantee doesn’t require that you actually make the trade.
Other advantages include the fact that options trading protects you from the fluctuating prices that other investments are susceptible to. Options investors are also protected to a certain degree against certain risks that other investments face.
Disadvantages to Options Trading
Yes, options trading can be a great addition to any portfolio, however there are also certain disadvantages. There are usually extra costs involved such as commissions and these extra costs may not make the actual investments worth it. They are also complicated, making them a poor choice for novice investors.
Deciding on Options Trading
Are you considering options trading? Well, in order to make sure you are successful at it, you may want to consult with an expert. They will help you understand what level of risk to take and whether or not this type of trading will help you meet your financial goals. Remember to weigh the pro’s and con’s and set goals before you begin.
Author: Ryan Lee
Article Source: EzineArticles.com
Provided by: Guest blogger
You can make profit with a Good Options Advisory Service and money management in Stock Options Trading
You want a very nice seletive support advice to aid you in studying trade better, and to support you when have to make tough judgements, and hence you are entering Stock options trading. You always want to know that you can count on having top of the line quality options advisory. A well thought out move.
When it comes to stock options trading, there’s an almost unlimited number of would-be options advisory services around. The dime a dozen happens mainly because of the worthlessness of majority of people. These will end up costing you more than they are worth. Our age endorses incompetency and we have to face it. On the other hand, some of the options advisory services out there really do prepare useful information bulletins for those who sign up with them. Where can you find these? Well, first off you should take a look at what it is that you should be avoiding.
The old proverb “if it seems too good to be true, it probably is” applies when seeking quality options advisory, initially. Perfect knowledge assumes that no mistakes are ever made because everything is known by everyone. In options tradings, it takes huge risks in order to make huge gains. There are in fact options traders who make use of strategies framed to earn money severely on premiums, and also on just option spread credits. Do your homework on the background of any person whose gains just sound to wonderful to be true. Be very thorough in your research.
Along those same lines, when it is about searching stock options advisory, know the hidden formula.
If it’s really true that someone has found the secret of making tons of money without risking a thing, then why are they trying to make a living by selling their secret away? Are they concerned about the possible disruption of their strategy if everyone starts doing it?
Such phony advisories nearly always claim that they know a secret only investment professionals are aware of. The facts simply do not support this assertion. Honestly, there is no mystic strategies in options. It will require discipline, intelligence and persistence to know what situations to apply these proven strategies. To save time, a good options advisory service is viable way. good options advisory services through careful searches on the net.
Pierre Witt is an options trading professional who has made a career out of options trading. Here is our new blog where you can find out more information about our options trading service http://www.optionstradingauthority.com
Reap the benefits of Stock Options Trading
Stock option refers to a deal between the buyer and the seller to possess a right to buy or sell shares or stocks at a certain price. It comes with an expiry date and the buying or selling must be done before that date. But that’s not compulsory for you to buy or sell any stock unwillingly. So, the stock options trading is an altogether different type of trading where you can invest your money and do trading with it. These are traded and treated in stock markets just like any other type of security.
The trading success can be greatly improved by using an effective stock option trading system or software. These trading systems use highly profitable entries and use well calculated stop losses so as to increase the returns.
With the help of a good trading system, online traders can get high leverage even while using a small amount of money. The system is quite efficient in spotting technically analyzed trading opportunity as and when it arises. To start trading, one has to open an account with the broker and obtained license to use the software. The software takes instructions from the trader and does the entire trading process automatically. Some systems also have online forums where traders can share formation and get tips from other members.
Before making the decision to buy, you should be careful to look at the different tools offered by the software. Ask for a demo version of the system, if provided by the company. This will help you understand the user friendliness of the system and if the system works properly. According to experts, initially you should enter into small trades. If the system works well, you can always increase the amount of your trading volumes.
Camelot Derivatives is an Australia-based derivatives dealing company specializing in the trading of international index options and stock options trading. The company provides you with its valuable advice on investing money in stock market and helps you multiply your wealth.
Richard Nicholson is a stock options trading investor working with Camelot Derivatives. The company deals in options trading and advises its clients on investing in options. To know more, visit www.camelotderivatives.com. Article Source:http://www.articlesbase.com/day-trading-articles/reap-the-benefits-of-stock-options-trading-1491464.html
What Options Trading is Not
Like any other trading instruments like forex, index, futures, commodity or even shares trading, options trading involves learning specified trading skills tailored towards options. Furthermore, application of these skills in the real market using real money, patience, perseverance and control in terms of money management and trading psychology are all essential in your options trading journey. In summary, options trading demand a fair amount of hard work from you, thus it’s definitely not a get-rich-quick program.
As mentioned, you could buy options as cheaply as $50 per contract or you could buy options which are as high as few thousands dollars per contract. Dont be misled by thinking you could buy a bundle of cheap options at $50 per contract and prayed that you could strike lottery if the share moves up (or down) substantially and your options would now fetch few hundred or even few thousand percents in profit. The price of the option contract, known as the premium, is set by the market maker and if its set so cheaply, just beware that theres a reason behind it. Cheap options could be priced that cheaply because (1) the share on which the options are traded are not or not in the habit of making a substantial move (2) the option may be expiring soon thus its time value is diminishing rapidly. Sorry to burst your bubble but you might end up holding a bundle of options which would expire worthless if you did not bother to do your homework to check whether the stock is going to make a substantial move in your anticipated direction in the near future, ie. earnings outcome, upcoming FDA approval for drug etc.
If you want to sustain your options trading journey from the stage where you would commit every beginner mistakes till the stage where you could cut your losses quickly and decisively and learn how to let your profits run, I believe you would require at least the following pre-requisites :
1) You are not under-capitalized
From my experiences and what I read from most options trading books, web-sites, it is advisable that you have at least a minimum capital of US$5,000 to trade options. If you could afford more, of course it’s better.
In the beginning of your options trading journey, you are bound to commit trading mistakes like buying too early, exiting too late, entering the order wrongly ie. sell instead of buy, overbuying, holding on to a losing position.
Due to your inexperience, you might also end up buying options for the wrong types of stocks in the beginning. All these costly mistakes would certainly lead you to lose your capital fairly quickly. Trading losses are also known as drawdowns. Lets say you experienced a series of losses (this COULD happen) and your capital is down 50%. If you started out with $5,000, you would still have $2,500 hopefully to turn your situation around. But if you started with $2,000 instead and after a 50% loss, you are now left with $1,000, which might not give you enough fire power to build up your trading capital especially if you still carry on losing due to your inexperience.
Thus, if you are under-capitalized, my advice is – dont trade, unless the particular situation is extremely favourable to the options that you intend to trade eg. if you would have a high probability of winning when you buy a call in a very bullish market and likewise you would be profitable buying a put in a very bearish market.
2) You practice good money management
For instance, if you allocate only 5% of your trading capital on every trade and you happen to lose 3 trades in a row, you would have lost 15% of your capital & still have 85% of your capital left. Lets say you started out with $5,000 trading capital and you allocate only $250 (5%) for each trade. If you encountered 3 losses in a row, you would be down $750 with a balance of $4,250 capital, still quite substantial to keep trading for a while if you continue sticking to the 5% commitment per trading rule. To recover your capital back to $5,000, you would require a 17.6% gain (750/4,250 x 100%).
Lets say you did not practice proper money management in your options trading and you plunge $1,000 in the few 3 trades which lose money subsequently. Now you would require a 42.8 % gain (3,000/7,000 x 100%) in order to recover your capital back to $5,000.
The lower you traded down your capital, the higher the percentage of gain you have to achieve in order to recover your trading capital. Thus, its very important that you practice good money management in your trading right at the beginning ie. committing only 5% or less of your capital in every trade so that you could keep your trading capital for a longer period and minimize the necessity to achieve higher percentage gains in order to recover a heavily traded down account.
The following table would give you a guideline on how much percentage gains you would require to build back your starting capital.
Down % Gain Required
5% 5.3 %
10% 11.1 %
15% 17.6 %
20% 25%
30% 42.9 %
50% 100 %
75% 300 %
Hope you would bear in mind the above considerations when you trade options. For more options trading resources, visit http://myoptionsonline.com
Author: Tony Chai
Article Source: EzineArticles.com
Options Trading Education
Are you looking for good options trading education? If so then you should look for a mentor who has been trading options and has made a fortune with options trading. Options are a better trading vehicle as compared to stocks. Suppose you are bullish on a stock ABC. Let’s say stock ABC is selling at $70 right now. If you buy 1000 shares of stock ABC, your cost will be $70,000.
Now, instead of buying stock ABC, you look for a call option on stock ABC. Let’s say 3 months call option contract on stock ABC with a strike price of $70 is selling at a premium of $15. One call options contract gives you the right to buy 1000 shares of stock ABC. This means that you can have the right to buy 1000 shares of stock ABC at $15,000. You may exercise this right or you may not! It depends on the price of the stock.
Compare this with your intended investment of $70,000. A saving of $70,000-$15,000= $55,000. So what do you think which is the better trading vehicle. You can use these saving in buying more options contracts. Suppose the price does not go up but goes down to $45. How much you lose if you had invested in stocks? $25,000. How much you lose if you had invested in options? $15,000. Options are definitely a better trading vehicle if used properly as compared to stocks.
Options trading can be highly profitable if done right. Just like any other investment, options can be risky. Many people don’t know how to trade options but still take a plunge in trading options. The result they burn their fingers. The right way is to first get good options trading education. Always train yourself and get good education before you make any investment.
Meet Chris Rowe. Chris was crippled at the age of 15 when he met an accident. He could not walk again in life. But this did not deter him in life. He became a master options trader and made a fortune trading options. He is the right person who can give you good options trading education. Recently he launched his Options GPS course in collaboration with Ron Ianieri.
Ron Ianieri is another great name in options trading education. He is a former options floor trader and is now the Chief Options Strategist at the Options University. He is considered to the the best teacher on options trading education. The motto of Options University is good options trading education for safer and better investing. Now both Chris and Ron are great mentors that can teach you what no one else can teach you.
Mr. Ahmad Hassam has done Masters from Harvard University. Try This 1500 Pips A Day Forex Signal Service from heaven. Learn about Options GPS Course!
Options 101 – Another Leveraged Tool to Make Big Profits
Interest in options trading has grown considerably in popularity in recent years. If done properly, options trading can put the trader in a position to make some massive gains without the risks that are present in other markets. For too long, investors associated options with risk and danger, and while some options strategies are accurately described by those two adjectives, the more basic options trades that beginners should focus on are not. In fact, options trading is the most cost-efficient way to control large amounts of stocks or other underlying assets without lots of risk. We’re going to show you some of the basic strategies that you can use to do just that.
Puts, Calls And More
For rookie options traders, it’s best to keep your focus limited to the most basic options strategies and that includes buying puts and calls. When we buy puts, we are bearish and we want the underlying asset to decline in value. Calls are the opposite. When we buy calls we are bearish and want the underlying asset to appreciate. Either way, our risk is limited to the premium we pay for each contact. An equity options contract is equal to 100 shares of stock and quote in prices such as $1, 2.50, $5, etc. So if you buy one call contract on Microsoft when the contract is trading at $2, your total is $200. ($2 x 100 shares = $200)
Here’s the beauty of options. Let’s say Microsoft shares were trading at $25 when you purchased that call. To buy 100 shares of Microsoft, you’d have to risk $2,500, more than 12 times more than the cost of the call contract. Best of all, the returns with options are usually far greater than with just owning stocks. Price action for options contracts is measured by delta, that is, the measure of how much an options contract moves in relation to the underlying security. A contract with a delta of 0.5 means that the contract moves 50 cents for every dollar the underlying asset does. That puts you in a position to gain 50% on a $2 options contract. If you buy a $30 stock, it needs to go up $15 to net you a 50% return. See how powerful options can be?
Other Conservative Options Strategies
There are a couple of other conservative options strategies that beginners should explore. They are covered calls and married puts. Covered calls and married puts are both income-generating strategies that allow us to collect premiums on stocks we own that either aren’t very volatile or are going through a period of choppy, range-bound trading. A good rule of thumb with both strategies is to write one contract for every 100 shares of stock you own.
Here’s how they work: Let’s say you own 1,000 shares of Pepsi and want to write (or sell) 10 covered calls at 50 cents each when Pespi is trading at $60. You will collect $500 in income for writing these calls (50 cents x 100 shares x 10 contracts = $500). Sounds good, but what’s the risk? The risk is that if Pepsi soars above $60 before the contract’s expiration date, the buyer of the calls is going to call away your Pepsi shares at $60 and sell them for a profit at whatever the market price is.
Married puts function in the same fashion. We can collect premiums, but we want our shares to stay ABOVE the strike price before the option expires. On the other hand, if we own married puts and the stock falls below the strike price, we exercise the option and sell the shares at the strike price. This is a nice option to have, so consider married puts to be an insurance policy against your stock position.
Binary Option Trading – Scenario For a Successful Binary Options Strategy
Binary option trading varies from broker to broker but the basic concept is the same: each trade has only one of two possible outcomes. Binary option trading calls and puts turn over extremely quickly – either hourly or daily. Fortunate day traders find their investments landing consistently in the money – and reaping huge rewards as a result.
High Yields Attract Investors to Binary Option Trading
Yields on the rapid turning trades range from sixty percent to in some cases seventy five percent. It is literally impossible to compute the compounding rates of return on some of these investments because the yields are so high. Here’s an example of how a trade payout might look.
Let’s presume first that the trade expires in the money. What would a two hundred dollar investment in seventy five percent yielding call options payout? The answer is a $200 trade in a contract pays $350 ($200 capital investment plus 75% profit of $150).
What would happen though if the position expired out of the money? This is where brokers can vary significantly. Sometimes an investor can unload an out of the money put or call prior to expiration – but some brokers operate differently. An unsuccessful trade might pay $30 (15% of the original $200 investment at expiration) on some particular securities. In other cases a trader might not be able to move his or her position at all. The bottom line is that it is difficult to get out of an out of the money trade.
A Binary Options Strategy
One possible way to reduce the possibility of getting wiped out while using all or nothing binary option trading contracts is by pairing up an in the money call (for example) with an at the money put. This can create a nested position where the trader makes money if the spot price at expiration is between the two strike prices.
One binary options strategy involves pairing a put with a call into a hedge and double position. Binaries trading has a simple up or down payout structure – making it simpler to understand than other types of options trading. See the advantages of opening a binary option trading account. Many times it takes only two successful $200 contracts per day to make $300 in profit per day.
A Review of the Options University
More and more people in the marketplace are starting to realize that options are an excellent tool for maximizing profitability, as well as protecting capital and assets through effective hedging.
In fact Options are sometimes called the only true method of hedging. Whilst this is true, it is only now that people are really starting to realize the potential benefits of options, the problem is that they are still poorly understood and largely used incorrectly by traders in the marketplace.
The way to make sure that a trader fully understands how to utilize options in a way to maximize profitability for his or her trading or business, is through good education and training. This is the single most important thing that a trader can do in their career.
However, there is a common problem with this, in that most of the options trading companies teach options back to front. This means that they teach basic options strategies to their students and then leave them to get on with trading live in the marketplace.
This is where the Options University is different. They have the philosophy that the only way to be able to trade options correctly, is first by being able to discover opportunities where Options can be used effectively.
They coach their students to be able to find these opportunities and once a trader is comfortable in doing this, they then continue on to teach the effective strategies and techniques for each different situation.
Options University offers a full range of courses from the basic level through to advanced and mastery courses.
The company is run be successful options traders who trade full time in the markets. This means they have the skills and experience to effectively teach what they know. They also offer live trading events and seminars, where traders can learn and teach in real time with professional traders.
For more information on this Options University Review, just Click Here.

