This article was originally published in The Option Strategist Newsletter Volume 19, No. 2 on January 28, 2010.
Over the years, we have written many times about the problems in predicting or estimating volatility. However, it is necessary to attempt the task, because it is so crucial in determining which (option) strategies can be used.
This article was originally published in The Option Strategist Newsletter Volume 16, No. 14 on July 27, 2007.
What Is A “90% Day?”
A “90% Day” must satisfy two criteria: 1) either advances or declines comprise more than 90% of all issues that moved that day (unchanged issues don’t count), and 2) either advancing or declining volume was 90% or more of the sum of advancing and declining volume.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 2 on January 27, 2000.
The question posed in the title above is one that should probably be asked more often than it is. Somehow, it has become something of a consensus in the option trading community that implied and historical (actual) volatility will converge. That’s not really true – at least not in the short term. Moreover, even if they do converge, which one was right to begin with – implied or historical? That is, did implied volatility move to get more in line with actual movements of the underlying, or did the stock’s movement speed up or slow down to get in line with implied volatility? In this article, we’ll look at some examples of what really happens with respect to implied and historical volatility, and we’ll try to draw some conclusions regarding this comparison.
This article was originally published in The Option Strategist Newsletter Volume 3, No. 14 on July 28, 1994.
We often write about volatility since it is the variable which most directly determines the price of an option. Oh, sure, the other variables are important — stock price, strike price, and time to expiration — but those are determinant things since we always know their value at any given time. However, volatility is the big question mark, the one variable that dances to its own beat, that can make or break a strategy even if the stock or futures price behaves as one expected.
This article was originally published in The Option Strategist Newsletter Volume 22, No. 17 on September 16, 2013.
In our last issue, the feature article discussed whether it might sometimes be preferable to trade the underlying stock as opposed to buying an at- or slightly in-the-money option. This week’s article is a follow-up to that discussion: we are going to look at various option strategies that are, in effect, almost like owning the underlying stock. The potential advantage of these option strategies is that they behave much like stock so time decay is not a major drag on the position. Moreover, leverage is available through these strategies (not as much leverage as one would have in an option, but decent leverage nonetheless). Leverage is neither good nor bad, but for those who want it, this is a way to achieve it without subjecting a position to onerous time decay.
This article was originally published in The Option Strategist Newsletter Volume 5, No. 12 on June 27, 1996.
We regularly have a column entitled "Volatility Trading". In this article, we want to look at the strategies that are applicable when one finds implied volatility is substantially out of line with where it "usually" is. As you will see, there is often more than one way to approach the situation, depending on which strategy you choose. You might choose to limit risk, but not at the expense of lowering your prospective profits unnecessarily; on the other hand, you want·to be prudent about your risk-taking.
This article was originally published in The Option Strategist Newsletter Volume 22, No. 16 on August 23, 2013.
The common perception among option traders is that option buying is the “best” approach to a speculative situation because of the great leverage that the calls or puts provide. But in many cases, ranging from extremely short-term holding periods to ones of more moderate length, where limited stock moves are likely, one may be better served by trading the underlying entity than by buying options. In this article, we’ll try to answer the question of which is better, an option position or a stock position. It turns out that the answer may be dependent on what one’s objectives are. Also, we’ll reconstruct some trading from past recommendations to see the option vs. stock results.
This article was originally published in The Option Strategist Newsletter Volume 16, No. 11 on June 15, 2007.
At the end of most of my seminars, I give a few general tips or principles that one should use. One of those is, “Only trade in accordance with your personal philosophy.” By that, I mean that you shouldn’t indulge in styles of trading that cause you to worry, gnash your teeth, or lose sleep.
This article was originally published in The Option Strategist NewsletterVolume 4, No. 1 on January 12, 1995.
Buying options is often regarded as one of the most speculative activities. However, as we have shown time and time again, there are often differing ways in which one can establish a strategy. These different ways may change the speculative to the conservative, or at least moderate things somewhat. Buying options is no exception.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 13 on July 8, 1993.
Two strategies are equivalent when they have the same profit potential. That is, their profit graphs have the same shape. More experienced option traders know that an understanding of equivalent strategies or positions is vital. It can help in many ways. For example, one may be able to more effectively use his capital by establishing the more favorable equivalent strategy. Or, when trading, he may be able to get a better execution. Finally, he may be able to make better adjustments to his positions by using equivalent strategies. The concept is not new, but even a veteran trader may have to sort through some equivalences in order to choose the best position.
