Fellow Options Traders, Why Aren’t You Selling Options in Your Trading Account?

admin — Mon, 25 Jan 2010 21:08:17 +0000

The only explanation which would seem acceptable is no one has shown you how to perform this marvel of printing money before, so you are a bit unsure of how to go about doing so!If this is your situation, then you are excused…But if not, you are truly missing out. Even if you are in the first situation, you are still missing out!No matter how long have you been an options trader, you will eventually find out that there is quite a bit of uncertainty involved with buying options.The Chicago Mercantile Exchange estimates over 80% of all options sold expire worthless. So why aren’t you selling them instead of buying them?An option is considered a “wasting asset.” Time value erodes as each day passes, accelerating as the option’s expiration nears. This is referred to as “time decay”.If the underlying contract does not move far enough by expiration, the option will have no value left and expire worthless and the option seller will keep the premium.When selling (or writing) an option, we get paid the premium up-front and we take advantage of “time decay”.However, it is simply not enough to know that to selling options generates significant premiums, you must also have a well throughout strategy for performing this. Along with this, you will also need to make corrections for when the market goes out of your favor.We have solved this by only selling straddles. You seasoned guys know what a straddle is. It is simply having a neutral outlook on the market, and trading it accordingly. By selling straddles, we are essentially playing both sides of the market. Stocks go up, down or stay the same. So we hedge our bets in both directions and hope that the stock remains flat.Our view stems from the fact that, a directional move will increase one side of the option play, and decrease the other side. So even if you may loose money in one position, we are gaining money in another. and by staying flat, both sides simply reduce to zero.Since we only sell out of the money positions, unless the stock breaks through the strike price, at expiration, best case scenario is we make money on both option legs. Worst case scenario is we loose on one leg, and we gain on the other, coming out with a wash.Or the more likely scenario, is both option legs are reduced to a level which we are happy to take profits.However, even though we believe selling options can potentially put the odds of success in your favor, it still requires good, solid market analysis. That’s how we, as seasoned traders arrive at our option picks!After trading options for many years with so much success, we see no reason to buy options. We have discovered, when options are sold correctly and carefully, they can generate a higher percentage return than any other option or stock trading strategy.Novice traders benefit the most from our alerts because they soon realize the difference is, selling options gives you a larger margin for error. You don’t have to be exact, only close.OPTIONXSPREADS is a group of ex-stockbrokers and investors who have developed this site to allow the ordinary investor to trade along with the pros, and have a chance to double, tripple and quadruple their investment dollar. And all you have to do is follow our trades and make money!Even if you do not follow our trades, realize that you should incorporate option selling into your trading strategy, to take advantage of the favorable odds! To see how we provide tremendous gains to our members every month, visit our website: www.optionxspreads.com

Options Trading Strategies â Treat Implied Volatility of Calls Separate From the IV of Puts

admin — Sat, 28 Nov 2009 08:41:53 +0000

The Implied Volatility (IV) of Calls needs separate treatment from the IV of Puts. Also, for specific options trading strategies treat the IV of both Puts and Calls as a combined bundle.Each option at each strike implies its own individual percentage value of the underlying product’s future volatility. This makes it unique from any other option within the same chain of a given expiry month. The individuality of an option’s percentage value at each strike is what draws the “smile” in the IV’s Skew.So, while an ITM Call has a corresponding OTM Put sharing the same strike, conversely an ITM Put has an OTM Call counterpart at the same strike, the Call must be treated uniquely as a Call and the Put uniquely as a Put. The more ITM an option becomes, its intrinsic value becomes higher and its extrinsic value is lowered. Conversely, at the same strikes where an ITM Call (or Put) gets deeper In The Money, the corresponding Put (or Call) becomes further OTM. The more OTM an option becomes, its extrinsic value rises higher and its intrinsic value is lowered. Even with ATM options, where the Call’s Delta is exactly 0.50 and the Put also has a Delta of exactly 0.50, the Implied Volatility on either side of that same ATM strike is different.While Calls and Puts appear side-by-side for a given strike, they are not identical twins to simply trade places. Think of it this way, each option has its own Intrinsic-Extrinsic fingerprint that makes that Call or Put identifiable only to itself.The logic for treating the Implied Volatility of Calls separate from the IV of Puts becomes obvious in the construction of specific spread types. Let’s break down the components making up the following spreads.

Now, let’s compare the above spreads with these other types of spreads.

Clearly, there are more spreads that require the Implied Volatility to be differentiated between Calls versus Puts, compared to the use of a combined IV. So, in choosing a data provider of Implied Volatility, make sure you get the IV data of Calls that is set apart from the IV of Puts; as well as, data that combines the IV of Calls and Puts together. That means 3 sets of IV data in one service.We have just established the structural logic for decoupling the IV of Calls from the IV of Puts. How do you apply this to a trade? Here’s how.

Is there a working example of a consistently profitable portfolio that treats Implied Volatility of Calls separate from the IV of Puts? Yes. Follow the link below, entitled “Consistent Results” to see a model retail option trader’s portfolio that applies this logic.To conclude, I’ll use an analogy. Though an egg comes in one shell, the yolk is separated from the white, for a different purpose that distinguishes the individual parts of that same egg. Treat Implied Volatility of an option’s anatomy in the same way.

Strangle Options Strategy » Iron Condor

Fellow Options Traders, Why Aren’t You Selling Options in Your Trading Account?

Options Trading Strategies â Treat Implied Volatility of Calls Separate From the IV of Puts

Options Trading Strategies â Treat Implied Volatility of Calls Separate From the IV of Puts