fbpx option education | Option Strategist

option education

The Expiration Of $VIX Futures and Options (16:20)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 20 on October 25, 2007. 

We have seen a renewed interest in how the $VIX settlement price is computed, as it pertains to expiring $VIX futures and $VIX options. Most of this interest has come from people who feel that they may have been “duped” by a somewhat biased settlement of $VIX. This is a false notion, fostered by the fact that $VIX has often “jumped” or “gapped” from its close on the last trading day (a Tuesday) to the morning settlement price (on Wednesday morning).

Is The $VIX/SPY Hedged Trade Just A Straddle in “Sheep’s Clothing?” (18:09)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 9 on May 14, 2009. 

The October Seasonal Trade (08:19)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 8, No. 19 on October 14, 1999. 

There is a seasonal strategy that we use each year, and the time is drawing nigh to implement it once again. The strategy is a simple one, and it is this: buy the S&P 500 Index at the close of trading on October 27th of any year (or on the preceding Friday if Oct 27th falls on a weekend). Sell your purchase at the close of trading on November 2nd (or on the following Monday if Nov 2nd falls on a weekend). This year, both of those days are days on which the market is open.

Covered Writing vs. Put Selling (02:09)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 2, No. 9 on May 13, 1993. 

Covered call writing is not one of our normally recommended strategies, because we prefer ratio writing or the equivalent, since it is a more neutral strategy. However, covered writing is a strategy practiced by many option investors and therefore is a topic worthy of discussion. In this article, we will approach this subject from a slightly different, more sophisticated viewpoint: we will compare the covered call write with the sale of a naked put. In addition, we'll see how this comparison leads us to conclusions regarding neutral strategies such as ratio call writing or straddle and combination selling.

Preparing for Volatility Trading (13:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 13, No. 4 on February 26, 2004. 

As we’ve mentioned before, the CBOE is about to offer us the ability to trade volatility. We expect this to be a very successful product – perhaps the most successful new listed derivative product since the introduction of index options over 20 years ago. We want you, our readers, to be prepared for this event. Hence, we will run a series of short articles prior to their introduction, to ensure that everyone knows the facts and understands the basic strategies.

Leverage (Part 1 of 2) (14:16)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 14, No. 16 on August 25, 2005. 

Most traders realize that leverage is available through margin accounts, futures, and options, but give it little thought in terms of constructing strategies or even in terms of developing broader trading plans – i.e., business plans.

More On: Protecting A Stock Portfolio With $VIX Options (15:07)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 15, No. 7 on April 14, 2006. 

Areader question regarding last issue’s feature article indicates that some expansion on the topic might be useful.

How Often do Futures Options Expire Worthless? (15:07)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 15, No. 7 on April 14, 2006. 

Over the years, we have published several articles dealing with the frequency of stock and index options expiring worthless. Generally, they don’t expire worthless nearly as often as (incorrect) conventional wisdom thinks. At a recent seminar, an attendee asked for the same data concerning futures options, and we didn’t have it! So, we’ve begun some research, and it looks like it could be quite interesting. In this article, we’ll look at a few of the futures markets, with the idea of adding more of them, as time for research permits.

The “Protection Trade” (21:16)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 21, No. 16 on August 24, 2012. 

For quite some time now (perhaps since last November), we have been pointing out how the voracious appetite for volatility protection has had the effect of distorting the term structure of the $VIX futures. Recently, though, this activity has branched out in a way that is only rarely seen in the markets: in short, large institutional traders are both buying stocks and buying volatility ETNs (thus, by inference, they are buying $VIX futures). Hedging on a large scale can distort technical indicators and other things – such as the term structure. That is, we can’t really interpret this activity in a contrary manner. Are these traders bullish (because they’re buying stocks) or bearish (because they’re heavily buying protection)? In truth, it’s probably the former, but their need to buy protection also means they’re not overly bullish. This reminds me very much of what was happening in QQQ options at the end of the tech stock craze in 2000.

THE BASICS: Review and Explanation of Concepts: Just Why Is Volatility So Important? (04:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 4 on February 23, 1995. 

If it seems that we preoccupied with volatility, it's because we are. It is the only variable factor in determining the fair value of an option; the others are known with certainty at any point in time — strike price, time remaining until expiration, stock price, dividends, and short-term interest rates. However, it has practical and real application as well. If you buy options when volatility is low, then you stand to gain doubly if volatility increases. Or, even if you're wrong on the direction of the underlying market, your loss will be reduced if volatility increases. Some examples may help to clarify these points.

Pages

Option Strategist
Blog Search

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
Visit the Disclosure & Policies page for full website disclosures.

-->