Archive for the 'learn option trading' Category
Over this last couple of posts I’ve attempted to provide you with an overview on a couple of the Greeks, indispensable indicators in showing you how to trade options “by the numbers”.
I will today wrap up our introduction to the Greeks by discussing Vega and Ro and with regards the former, we”ll return and take another look at the IWM index.
Of the variables which affect the price of an option Vega is certainly one of the most important and is without doubt the most powerful of the Greeks. Vega measures how much an option will change in value because of a one point change in volatility. You may well see a significant change in your position because of a change in volatility.
Back to the IWM. Several days have now elapsed since we last looked at Delta, Gamma and Theta. As at today these are reading at 39.38, -20.03 and 5.15. Do take a look back at the last two posts should you require an explanation of these readings. In this post our focus will be on Vega. Vega shows up as 23.33. So, this is telling us that for every $1 change in increase in the Vega, (or volatility of the market) we will gain an additional $23.33 in profit. 23.33 is a relatively neutral figure which is what we want to see.
We can observe the measure of volatility in the market by tracking the $VIX index. This reflects the measurement of the number of puts being purchased on the CBOE (Chicago Board Options Exchange). As a general rule of thumb, when volatility goes up stocks go down and conversely when volatility goes down then stocks go up. Volatility is a reflection of fear in the market .. when we see more people buying puts that is because they fear that prices will decline .. the more puts purchased, the greater the increases in the levels of volatility. If we compare the graph of the $VIX with that for the IWM (or indeed any of the other indexes) we will see that volatility runs in exactly the opposite direction of market activity. When the $VIX drops back .. the market is seen to be going up and when it goes up, the market moves down.
The IWM positions I have on – a double calendar spread, are short positions – where I am selling in the front month and protecting myself with the calls and puts purchased in the following month. The Vega positions I have on mean that as long as the market continues to rise I will make money and if it drops back I will lose money.
Just a very quick word on Ro. This is not an “active” Greek like the others, but is simply the measurement of the change in value of an option relative to a one point change in interest rates. Interest is used as a comparative because when you purchase an option you are spending money which might otherwise be sitting in an account earning interest.
With a little less volatility in the market things are settling a bit and “touch wood” I will not have to make any further adjustments. As at today, on the spreads I have on – current profit is $752.50 for the month, on a margin of $3,800. If I should be able to hold this position, maximum potential profit is $1,640.44, although sensibly I will be closing off most of the positions over this next 4-5 days. Strange things have been known to happen during the week leading up to expiry!
Even if this current figure of $752.50 was to remain unchanged (and yes, it could go down) that is a 30.47% return on margin .. not for a year .. but for a month! Gotta be better than leaving you money in a bank account getting a paltry 5% a year don’t you think?
Do remember that here we are learning how to trade options as a business and that means managing by the numbers. And, to whom do we turn to get the numbers .. yep, you guessed it .. the Greeks!
Today, I just wanted to give you a quick insight into the OptionsSphere course and what it reveals when it comes to how to trade options and make consistent profits and long term gains.
Its a great wrap up I think, before I start getting down on the blog some of my personal thoughts on working my way through the program.
In all the course consists of some 37 videos, spread through 11 modules. Here Dave provides you with a comprehensive yet easy to follow and (for me) totally absorbing account of the secret trading methods used by just a few professionals and hedge fund managers. As he sets up positions on the Think or Swim platform he invites you to observe him as he places his spreads, returns to make adjustments (if necessary) and then wraps it all up with some advanced techniques and never before shared, explosive wealth building strategies.
No stone is left unturned. After being introduced to trading as a business and trading with confidence, we then get to see why trading by the numbers is so important in the way they impact on our trading business, (enter The Greeks!); before moving on to the strategies used in selecting our trades, including an introduction to charts. Unfortunately many traders put on individual positions not realizing how this affects their overall portfolio. We are shown how to build a portfolio by putting on positions that work together, and are provided with an excellent overview of the Think or Swim platform. I might add .. TOS has an amazing array of training material available on working the TOS platform .. and best of all its totally free.
Having learned how to build our portfolio we are shown how to manage it by the numbers and are then shown what to do when the numbers don’t look so good (hint: think adjustments). Did you know that by making one small change in your position you can increase the odds of you making a profit by 80%? This is the one missing link in trading options and stocks that almost no-body ever teaches.
Next, we explore the risks of holding positions right through to expiry date and are taught how and when to close positions for maximum profits. Although we do not delve into technical analysis in great detail, there are specific analysis tools which give us an insight into the direction that the market may be moving. One such Dave reveals to us is an indicator that predicts short-term and opening market direction with an amazing degree of accuracy, close to 95% of the time. And that’s just for starters!
So far I have deliberately refrained from mentioning the price that this course is selling for, rather preferring you go check this out for yourself. But, let me say this .. I have been invited to join weekend courses costing ten times what you will pay for this course .. and seen some of the material left with participants .. and these do not hold a candle to what is on offer here. OptionSphere represents tremendous value for money .. and Dave over delivers on this big-time .. all the way through.
Having received the training package you are also invited to grab hold of Dave’s exclusive Daily Market Review and Commentary, a free trial offer for 30 days. After that time, a monthly subscription is charged. But .. speaking for myself .. and because I a newbie trader, I am just sticking with the OptionSphere program for the moment. And I will have unrestricted access to that material for ever. That is going to keep me busy for quite some time to come. Then, when I have learned how to trade options profitably, I may well return to subscribe to the Daily Market Review and Commentary. Some of you more experienced traders, may see the merit in subscribing to the Review and Commentary, straight away.
Now, let me say from the outset that I am just starting out on this wonderful journey to learn how to trade options. At this point in time my knowledge is scant. I just wanted you to know that if you are seeking “guru” advice then I am not qualified to provide it. However, you would do well to take note of my recommendation to check this course out if you are seriously keen to know how to trade options and profit.
Already my journey is uncovering things which I believe over time will prove to be of inestimable value to you. It is one thing to learn what the master is teaching, yet quite another to gain prior insight into the doubts and questions in the minds of those who have gone on before you; and to share in the delights of their minor triumphs when they see the fruits of their studies pay off. Having now reviewed all of the material in the OptionSphere course, played around a bit putting on ‘paper’ positions on the trading platform (the Think Or Swim platform is the platform of choice), I have told family and friends that the only way I could possibly fail to grasp the concepts taught is if, (a) I’m downright lazy, (b) I suffer some sort of brain injury or impairment or (c) I fail to reserve extra capital to make adjustments as needed. I will speak further about adjustments in due course and why they are EVERYTHING when it comes to ensuring you are in profit on a consistent basis.
Do you need to have any knowledge of options before you commence this course? Absolutely not .. I didn’t! However, if you don’t then it is recommended that you go get a good book from your local library, so that you have a basic idea of options; what they are, how they are traded etc.
Those of you who have already traded but on a “hit and miss” basis and who’ve become disillusioned with your results or who have found technical analysis too challenging will find this course to be a refreshing new approach to options trading.
Tomorrow I will discuss in a little more detail the nature of the trading method in the OptionSphere course .. so stay tuned!
Just as an aside .. and remember we are talking “paper trading” only at this stage! I have four positions on for February options .. just tiny amounts, placed on yesterday. Despite the markets opening well down this morning, I have 3 of the positions showing a small profit and one a small loss, at market close. If all of these indices stay around their current levels through to expiry .. then I will be seeing some good profits arising just prior to expiry date .. if they start to move significantly then I will be making corrective adjustments to get them back on track. Certainly, there is no cause for concern just yet! Last month I put on a small spread (IBM) and on a margin of $500 landed a $125 profit in two weeks. That’s a pretty healthy return I am sure you will agree and being my first spread I could not have been more delighted. It would have been even higher if I had placed the spread on a bit earlier.
As I said .. anyone can learn how to trade options and make consistent profits .. but as with anything else .. you need to put the study in at the front end.