Trading
Volatility with Options by
San
Jose Options Mentoring
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
For example, we have on a Butterfly
spread and the market has been up-trending for a few
days. In this case we might need to make an adjustment
on the Butterfly or possibly on our whole portfolio. Options
trading requires some management or we can take on great
amounts of risk. So, if this is the situation, we'd be
looking at adjustment ideas with IV in mind. We'll study
our price chart and also the IV chart. Perhaps we'll find
that the IV is on support now, and it looks like it's
going to rise again.
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 is really an unlimited number of
ways to create a positive Vega position, but the most
common positive Vega spreads are Debit Spreads, Short
Butterflies, Broken
Wing Butterflies (OTM), Short Condors
and Calendars. In our mentoring course we discuss option
strategies and adjustments in detail.
In summary, prior to doing adjustments
to your portfolio or option position, consider the volatility
chart of your asset as well as the major markets. This
will aid you to make better adjustment choices and reduce
risk while maximizing your profits.
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.
|
