One of the hallmarks of option trading is its extreme flexibility in both the initial construction of positions and in the ability to mutate forms to accommodate the evolution of a trader’s thesis regarding the impending behavior of the underlying.
The weekly options have been the topic of our blog discussions over several weeks now. Despite this topic being the trendy subject and in the forefront of many discussions, it is helpful to recognize the functional flexibility this dramatically shortened lifespan brings to a variety of strategies.
For a while the major Oil Companies and Drillers were drifting out of the news. The nasty leak from the BP well was not getting constant attention any more as a mostly successful cap was put in place. Four of the largest Oil Companies are beginning a program for rapid response to a spill, all of which is very good. The problem is part of the market is not buying this, yet.
A recent discussion on options was started when this question was asked:
If I want to buy a PWER stock option with its high growth because I don’t have the money to buy it outright. What things in such a option should I look for and what should I avoid?
Time to expiration, price of the underlying, implied volatility, historical volatility, puts, calls, delta, gamma, theta, vega, in the money, at the money, out of the money, intrinsic value, extrinsic value, higher commissions, egregious bid ask spreads, no options traded on a stock with a beautiful technical set up, multiple potential beasts and physiologies, LEAPS; why would one even bother with options? If I retain a shred of rationality, an open question to be sure, there must be some reason to complicate my life with these additional variables.
I learned about one risk of buying LEAPS the hard way.
LEAPS (Long-Term Equity Anticipation Securities) are options that expire in a year or more. That means they generally have a lot of time premium built into them.
Options offer a number of unique advantages to the trader, but perhaps the single most attractive characteristic is the ability to control risk precisely and to do so with surgical precision. Much of this advantage derives from the ability to control positions equivalent to stock with far less capital commitment.
One of the questions that often comes up in many of my option classes when teaching the credit spread strategy is what to do with the short leg. This entire article will focus on providing a clear answer to that question, while covering all other relevant details.
Because it is the fancifully named winged beast category that garners the most attention, I thought we could focus on the often overlooked members of the group: double calendars and double diagonals.
If it isn't obvious yet, you have to understand delta to grasp gamma. You could probably go on to learn about the other two important "greeks," theta and vega. But you can't really "get gamma" unless you know delta.
Many times I receive interesting questions from our graduates in my email box, and occasionally, I like to share them with our general reading audience. Here are some of the questions that I was asked recently. Some questions are related to the topics of options, others to stop losses, while others are on the topic of ETFs. Hence, in this article there is a bit for everyone.
During one of my option classes, some of my students were really having a hard time grasping the concept of the Greeks, namely the Delta and Gamma, as well as their relationship to each other. In this article, I will focus on explaining those concepts to the readers in a similar way that I did for my option students.
In many of my classes, as I go through various option strategies, a question frequently pops up about the married put. The majority of our students are unfamiliar with the intricacies of the married put. Here I am going to explain, in a simple and easily understandable way, what a married put is...
Short sellers tend to get a lot of bad press -- and a lot of blame when stocks go down. The alternative to shorting is to buy a put option. Buying a put allows you to lease the downward price movement of a stock...
The short-selling of stocks has achieved almost-mythical status among individual investors. We hear, all the time -- on CNBC, FOX or from brokers or financial gurus -- that "The shorts did it," "They are caught in a short-squeeze," "The shorts are bringing it down." Mention the word "short" and you can almost hear Darth Vader breathing through his mask. But all myths are based on some facts, so let's look at them...
Traders Talk Live Radio (which airs on AM 560 WIND in Chicago) recently featured www.TheOptionsInsider.com founder Mark S. Longo as a special guest. Mark discussed the impact of the short selling ban on the options market as well as a few protective options strategies for these troubled times. Options Insider Radio listeners can find the complete broadcast here...
A Vertical Spread is an options strategy in which options are bought and an equal number of options of the same type (Puts or Calls) are sold with different strike prices, but with the same expiration date. Vertical Spreads are directional strategies and are either bullish or bearish. Click on this article for more information on how to trade the extremely versatile vertical spread...
More answers to common options questions including: What Are The Advantages/Disadvantages Of Vertical Spreads and What Is The Risk Of Selling An Out-Of-The-Money Covered Call?
More answers to common options questions including: What are the similarities/differences between futures and options contracts & How do LEAPS differ from conventional options?
More answers to common options questions including: How do I find an options broker, What is an options exchange And How do I get started trading options?
More answers to common options questions including: Can I trade options in my IRA? How do ESOPS differ from standard options? What is the difference between American-style and European-style options? And more...
Delta, Gamma, Theta, Vega and Rho - you are likely to hear these "Greek" risk measures whenever traders talk about options. Although these terms sound complicated, they actually are easy to understand once you grasp a few basic concepts. Mastering them will give you a good understanding of why options behave the way they do under different circumstances.
"Fine," you might say "that's the theory, but is it the way options really trade?" The answer is "yes." The reason is that when call or put time premiums get out of line with each other, option market makers can make a risk-free arbitrage profit.
This week, we review what are known as the put/call parity rules. If you know one rule - and you remember your high school algebra - you can quickly master all the rules. Mastery of these rules gives you a lot more flexibility when planning your options strategies.
This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.
This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.
This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.
No matter how bullish the stock market may look at a particular time, you should always diversify your portfolio with a few uncovered (or "naked") put purchases. This week, we offer advice on how to pick the puts that are right for you.
I suppose everybody has heard the above, somewhat modified, quote in a wide variety of contexts. Well, it's no different in options trading! People are trained to look at data in a wide variety of ways. Some feel comfortable looking at a column of numbers, others like charts, and still others like to look at different types of graphs. Our plan is to look at graphical representations of the 6 building blocks of options trading and then later on we'll learn how to combine these graphs into some common and uncommon options positions. These graphs will allow us to glean a lot of information about our positions, just by looking.
Since there are so many available options - and so many ways to trade them - you might not know where to begin. But getting started is easier than you think, once you determine your goals...
Since there are so many available options - and so many ways to trade them - you might not know where to begin. But getting started is easier than you think, once you determine your goals...
What is an option and what gives it value? In this article, we take a look at why options are insurance against financial uncertainty and why this insurance is often more reasonably priced than you might think.
What is an option and what gives it value? In this article, we take a look at why options are insurance against financial uncertainty and why this insurance is often more reasonably priced than you might think.
What is an option and what gives it value? In this article, we take a look at why options are insurance against financial uncertainty and why this insurance is often more reasonably priced than you might think.
The world of options is dominated by four mathematical variables: Delta, Gamma, Theta and Vega. Collectively they are known as "The Greeks," although options traders often add their own colorful adjectives when their P&Ls begin to sink...
"The Greeks" are a collection of statistical values (expressed as percentages) that give the investor a better overall view of how a stock has been performing. These statistical values can be helpful in deciding what options strategies are best to use.
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