This article was originally published in The Option Strategist Newsletter Volume 22, No. 22 on November 29, 2013.
There are a number of trading systems involving the days before and after Thanksgiving. Some are quite profitable, and some not so much. For some reason, there even seems to be a certain amount of misinformation about one of these systems, although that arises from financial television, which is incorrect, not surprisingly. In this article, we’re going to take a look at three such systems: one encompassing the three trading days prior to Thanksgiving, one looking only at the day after Thanksgiving, and a longer-term one involving a period several weeks after Thanksgiving. This latter one has a few interpretations, so we’ll expand our analysis of that one.
This article was originally published in The Option Strategist Newsletter Volume 14, No. 10 on May 26, 2005.
Statistically-based trading is normally applied to hedged positions. It could be pairs trades for stock traders, or option spreads for option traders, or intramarket spreads for futures traders. But generally, the position is one that is based on a relationship between the entities involved – whether that relationship be a price-based relationship or a volatilitybased relationship. The position can be evaluated using assumptions about price relationships or about volatility, and those assumptions are based in historic fact, upon which mathematical calculations can be made (expected return, for example, and then the Kelly Criterion).
This article was originally published in The Option Strategist Newsletter Volume 2, No. 22 on November 26, 1993.
When I was in Europe recently, one of the attendees at the Colloquium asked me what guidelines I generally followed in my option trading. This is actually a rather thought-provoking question, especially when it regards something you do almost every day. In our many feature articles, many useful general strategies have been given, but not assembled all in one place. After giving the matter some thought, it seemed like it might be beneficial to list some of the "rules" that we follow, either consciously or sub-consciously after all these years.
This article was originally published in The Option Strategist Newsletter Volume 12, No. 7 on April 10, 2003.
A subscriber recently asked the question, “If the market is breaking down and options are expensive, would a call credit spread be the best low risk spreading strategy to use?” It’s a good question, and the answer gets into a dichotomy of sorts – in that a credit spread might not be the best strategy even when options are expensive.
It is sort of a “knee-jerk” assumption that a credit spread will do better than a debit spread if volatility collapses. In reality, that’s not true. If they both employ the same strikes, they will perform the same (otherwise, risk-free arbitrage would be available).
This article was originally published in The Option Strategist Newsletter Volume 16, No. 7 on April 12, 2007.
This article reflects some new research (or, more appropriately, backtesting) that we have done regarding credit spread strategies. These strategies are very popular at the current time with a large number of web sites and advisory services. However, it seems that most people don’t really understand the risk that they’re taking in this strategy. Many stories are now surfacing about condor spread accounts with losses of 50%, 60% and more. Most of these were caused by being heavily invested in a month when the underlying made a maximum move.
For completeness, let’s start at the beginning. A credit spread involves buying one option and (simultaneously) selling another option – where the two options expire in the same month, but have different strikes. If the option that is sold is trading at a higher price than the option that is bought, a credit is taken in when the spread is established. Hence it is a credit spread.
This article was originally published in The Option Strategist Newsletter Volume 20, No. 8 on April 29, 2011.
Once again, as we enter another earnings reporting season, we are seeing some large moves by individual stocks and perhaps even larger anticipation of moves by the option markets in advance of the earnings announcement. This was a topic of much discussion at the just-concluded 3 Gurus Webinar over the past two days. Because of that interest, we thought the subject is apropos as the feature article this week. In this article, we’re going to review the strategies that are often recommended in this newsletter.
This article was originally published in The Option Strategist Newsletter Volume 7, No. 3 on February 12, 1998.
The attraction of selling something that may waste away to nothing leads many option traders to the strategy of naked option writing. However, the strategy is definitely not for everyone. Even for a suitable account, the strategy can “blow up” if not handled properly. Since volatility is so high these days – especially in index options – as compared to the levels of 1995 and earlier, it seems that the strategy is becoming more popular. Therefore, this article will outline some of the ways that naked writing – if undertaken at all – should be approached.
This article was originally published in The Option Strategist Newsletter Volume 7, No. 22 on November 25, 1998.
Using options as a contrary indicator to aid in predicting the forthcoming path of the underlying instrument is one of our favorite technical tools. When option speculators agree en masse about something, they are generally wrong. So, as astute traders we should do the opposite (the exception, of course, is in stock options where someone might be acting on inside information, in which case we would want to go along with them).
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).