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Strategies For Volatility: Calendar Spreads (04:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.

When volatility increases, the option prices increase. This simple statement is the main philosophy behind owning options during periods of low volatility, especially if you think there is a fair chance of a price or volatility explosion occurring shortly after you buy your options. A strategist will generally prefer to own both puts and calls so that he can make money if the market moves up or down. Thus, owning a straddle (a put and call with the same striking price) or a combination (a put and a call with different striking prices) are the two simplest strategies that take advantage of increasing volatility. Another is the backspread, which we have been describing in a fair amount of detail all through the spring of this year. We currently have four backspread positions in place. We prefer the backspread to a straddle or a combination because it is easier to adjust the backspread as you go along, if you want to keep the position more or less neutral to market movement.

Reverse Calendar Spreads (09:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 12 on June 22, 2000.

The reverse calendar spread strategy is not one that is employed too often, probably because the margin requirements for stock and index option traders are rather onerous. However, it does have a place in an option trader’s arsenal, and can be an especially useful strategy with regard to futures options. The strategy has been discussed before in The Option Strategist, and it is apropos again because it can be applied to the expensive options in the oil and natural gas sectors currently.

Expensive Options (05:18)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 18 on September 19, 1996.

The volatility that has been introduced into the overall market since February has made most options expensive, or seemingly expensive. This comes after one of the most prolonged periods of depressed volatility that we have seen since options started trading: from 1991 through 1995 options were consistently on the cheap side, except for a few brief periods. Consequently, the current crop of option prices seems very expensive — especially considering what traders had become accustomed to over the past few years. In reality, it is more likely that they are just priced at higher absolute levels than one is accustomed to seeing. In this article, we want to address some strategies and tactics for handling "expensive" options.

The Effects of High Volatility (17:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 17, No. 22 on November 26, 2008.

Option traders generally welcome volatile markets, for more strategies can be employed over the entire spectrum of optionable stocks. However, this market is arguably more volatile than any in history and, as such, presents a few problems and opportunities that traders might not ordinarily have considered. In this article, we’ll take a look at some of those.

The 55-Day Phenomenon

By Lawrence G. McMillan

Both the Crash of ‘29 and the Crash of ‘87 – two of the worst days in market history – occurred exactly 55 calendar days after the market had made an new all-time high.  In other words, 55 days after the top, people are getting anxious.  For those who believe in this theory, rather than coincidences, it supposedly has something to do with Fibonacci and/or biorhythms – who knows?  

More On the Effects Of Volatility (09:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 05 on March 9, 2000.

Two issues ago, we wrote about the effects of changes in implied volatility on a call bull spread. Several readers asked about similar effects on other “common” positions – especially on put spreads – so we’ll expand on that theme this week

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Is A Rising $VIX Always Dangerous? (12:11)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 12, No. 11 on June 12, 2003.

Admittedly, option traders’ “hot” topics may sometimes be pretty boring to the average guy, but this question (above) has been the subject of much discussion amongst all manner of stock market analysts. Recently, the various volatility averages began to rise, even while the broad stock market was rising. This is something that hasn’t happened for a few years, and it also seemed to go against the “conventional” (and I should mention, incorrect) volatility analyses that one is often subjected to when watching financial TV these days. So, just what does this rise in volatility mean, coming as it does during a period of rising prices? That’s what we’ll explore in the feature article in this issue.

Is It Different This Time? (13:19)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 13, No. 19 on October 15, 2004.

Despite a modest, recent rise in $VIX, the CBOEs Volatility Index remains very subdued – as it has since March of 2003, and especially for most of this year. There are some general relationships between the broad market and $VIX, and there is a good deal of price history to justify those relationships. However, there have been recent articles published in several forums that suggest many traders seem to think it will be different this time – that $VIX isn’t predicting the same sorts of things that have happened in the past. In this article, we’ll explore those suppositions and try to outline some things to look for – from both $VIX and from the broad stock market.

The Condor Index $CNDR (Preview)

By Lawrence G. McMillan

The CBOE recently listed a Condor Index (symbol $CNDR).  It is a benchmark index designed to track the performance of a hypothetical option trading strategy that sells a rolling condor spread.  The index uses $SPX options, which settle for cash on a monthly basis (“a.m.” settlement).   The hypothetical spread is rolled monthly.

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