Strangle Options Strategy » Stock Options

Why Simple Put Options Buying Fail in Volatile Markets

admin — Sat, 16 Jan 2010 09:01:27 +0000

The recent stock market crisis (2008) took the stock market down by more than 30% in less than a year. This has a lot of traders thinking that big money can be made simply by buying put options on stocks that will move down with the market, especially high beta ones. Nothing can be further from the truth. Most amateur options traders who did that either failed to make any money, make very little money or outright lose money even though the stock moved down a lot as predicted. Why is that so?
Volatile market conditions are especially bad for buying stock options due to 2 reasons. Firstly, the extreme volatility resulted in extremely high implied volatility which increases the extrinsic value of options dramatically, depressing its profitability. Secondly, extreme volatility leads to extreme speculation which encourages market makers to open up the bid ask spread to an unreasonably wide level in order to fill their own pockets.
Extrinsic value is the price one pays to the seller of stock options in order to justify the risk undertaken by the seller for giving such a right to the buyer. This price is arrived at in theory by options pricing models such as the Black-Scholes model. Extrinsic value directly affects the profitability of the options as the higher the extrinsic value of an option, the more the underlying stock needs to move in order to breakeven or profit. For example, if two options based on the same underlying stock, the same strike price and expiration month have different extrinsic values (of course this cannot be the case in reality), the option with the higher extrinsic value will make lesser money in profit than the option with the lower extrinsic value when the underlying stock moves by the same amount when held to expiration.
Extrinsic value is affected mainly by the level of implied volatility of the underlying stock. If the underlying stock is expected to make big moves, implied volatility goes up and the extrinsic values of its options go up as well. In times of extreme market volatility, extrinsic values go up dramatically across the board, depressing the profitability of options. In fact, one could end up losing more money than usual if the stock does not move according to expectations due to the higher extrinsic value paid. This is why a lot of amateur options traders who simply bought put options recently failed to make much money or any at all. This situation is made even worse by the wide bid ask spreads provided by the market makers.
Market makers are whom options traders really trade options with. When you buy an option, you are really buying directly from market makers who hold an inventory of those options and when you sell options, you are really selling back to these market makers who want to maintain an inventory of those options. Market makers buy and sell options in the exchange, ensuring the liquidity of all options contracts and profit primarily from the bid ask spread that they provide, buying at the bid and selling at the ask. They function exactly like used car dealers, buying at lower prices and selling at higher prices. Typically, the more actively traded the options are, the closer the bid ask spread tend to be due to competition between market makers, however, in times of extreme volatility where there are a lot more buying and selling on panic and more than enough business to go around for all market makers, they usually open up the bid ask spread in order to make even more profits. That is why we saw unusually wide bid ask spreads in this recent crisis. Wider bid ask spreads result in larger upfront losses which again depress the already depressed profitability of stock options due to the higher extrinsic values.
The higher extrinsic value and wider bid ask spread makes profiting from simple stock options buying extremely difficult and are the main reasons why amateur options traders fail to make money buying put options during the recent stock market crisis. Conversely, writing options are an extremely profitable way to trade options during a volatile market where extrinsic values are high. Naked writes and Credit Spreads are really the way to go in a volatile market condition and are what most beginner options traders do not know about. Selling options instead of buying them turns the table around and creates an extremely profitable position during times of high extrinsic value. Learn more about credit spreads at http://www.optiontradingpedia.com/free_debit_credit_spread.htm now.

Balance of Risk and Reward in Options Trading

admin — Fri, 15 Jan 2010 21:03:12 +0000

You don’t need to be a trader or an investor to know that the higher the risk, the greater the reward. This concept is true in all aspects of life and business. The more risk you are willing to undertake in life, the more life returns to you. Indeed, risk and reward are directly proportional and often in trading and investment, the more risk your account is exposed to, the greater the return on investment when things work out as planned.
Knowing that risk and reward are proportional makes finding the correct balance of risk and reward extremely important to all kinds of traders; stock traders, futures traders, options traders etc. There is no one solution that works for everyone and the correct balance is decided upon the risk appetite and risk tolerance of the individual trader.
For stock traders, balancing risk and reward primarily involves adjusting the amount of growth stocks and defensive stocks in one’s portfolio. Generally, the more growth or speculative stocks in one’s portfolio, the greater the risk due to greater uncertainty and therefore the higher the gain when things works out as expected. The more defensive stocks in one’s portfolio, the more predictable returns become and therefore the lower the return as these stocks does not generally move a lot. This degree of risk / reward balancing is at best crude compared to the surgically fine degree of balancing you can have in options trading.
Stock options are the most versatile trading instrument in the world right now due to the wide array of options strategies that are employable. Yes, not only can risk and reward be balanced through employing different mix of strategies in your portfolio, there are also different risk and reward profiles achievable by each individual options strategy. There are options strategies that range from making over 1000% profit while risking all your money to options strategies that make a mere 0.01% return while risking nothing as well as every centimeters in between.
As long as you understand what your personal risk appetite and risk tolerance is, you will be able to find an options strategy that suits your needs 100%. Here’s a general outline of the kind of risk reward balance that can be achieved through options trading:
Highest Risk, Highest Reward – OTM Call / Put buying
This is the options strategy that produces the legendary 1000% profit that amazed so many beginners. What those ads did not tell you is that the risk is losing ALL the money that you put into the strategy. This options strategy involves buying out of the money(http://www.optiontradingpedia.com/out_of_the_money_options.htm)call options when you think a stock is going to go up or buying out of the money put options when you think a stock is going to go down. Professionals use this options strategy with only a very small portion of their money in order to place a bet on an uncertain event such as leveraged buyout. Some lucky amateurs use this options strategy with all their money and then become millionaires overnight. The downside of this strategy is the fact that if the stock did not move far enough in the direction you expected it to, you can lose all the money you put into the strategy. That is also why so many beginners break their accounts overnight in options trading.
Various Degrees of Risk and Reward – Options Spreads
There are literally hundreds of possible options spread strategies out there with various degrees of risk and reward for every market condition. There are more aggressive bullish, bearish, neutral and volatile spreads and there are more conservative ones. All of them shares the same logic of higher risk compensated with a higher profit potential.
Lowest Risk, Lowest Reward – Options Arbitrage
Yes, there are literally risk free trading opportunities in options trading which also returns very small, sometimes negligible returns. These are the legendary options arbitrage strategies. Options arbitrage strategies such as conversion/reversal aims to make a fixed return totally risk free through simultaneously buying the underlying and shorting the overpriced synthetic equal or vice versa. The problem with such strategies is that the returns are so low that most of the time, it’s even lower than the commissions you will pay for the trades made. Even if you manage to return a positive return, the return can be as low as 0.01% in percentage terms. That is why arbitrageurs aim to make an absolute return using enormous amounts of money.
With this in mind, the most conservative traders may choose to specialize totally in arbitrage strategies (http://www.optiontradingpedia.com/options_arbitrage.htm) while the most aggressive traders may choose to specialize in leveraged speculation using OTM options. Everyone else would be able to find something to suit your risk appetite in the hundreds of spread possibilities. This degree of flexibility and range of risk/reward possibilities makes stock options the most versatile trading instrument in the world today and why options trading (http://www.optiontradingpedia.com) is so popular these days.

Why Trading Stock Options is Better in a Recession

admin — Thu, 14 Jan 2010 09:19:03 +0000

The 2008 recession and stock market crash is the worst financial and economic crisis since the great depression. By Feb 2009, the Dow has dropped almost 50%, erasing all its gains since 1998. In terms of absolute points, the Dow has dropped over 7000 points, which is more than the entire Dow index before 1998. Without doubt, this stock market crash has rendered many traders and investors helpless in search for profit.
Even though profiting during such market condition is a really tough thing to do, traders and investors still bought stocks in hope of a recovery only to be disappointed again and again leaving a bunch of stocks in deep losses in their account. When money is used this way, what it really does is to rob investors and traders of cash for investing when the real recovery starts.
So, is there a way to place those bets with very little money and limit your losses to negligible amounts if your bet is wrong as it had been so many times in this stock market crash so far? Yes, the answer can be found in stock options trading (http://www.optiontradingpedia.com).
Everyone knows that stock options trading is risky and that you could potentially lose all your money. What everyone failed to recognize is the fact that stock options trading is also a risk limited way of trading for big profits while controlling potential losses to negligible amounts!
Stock options (http://www.optiontradingpedia.com/stock_options.htm) are contracts that allow you to buy a stock at a specific price no matter how high the price of that stock is in the future (Call Options (http://www.optiontradingpedia.com/call_options.htm)) or sell the stock at a specific price no matter how low the price of the stock is in the future (Put Options).
By replacing the buying of the stock with buying its call options, you will be able to control the profits on a stock using just a small amount of money. If the stock goes up, you simply sell the call options for the same profit as you would as if you bought the stocks. If the stock goes down, you lose nothing more than the small amount of money you paid for the call option contract. See where I am going with this? If you had bought only the call options of those stocks that you have bought all of last year, you would have lost only a small fraction of the losses that you would already have incurred through buying the stocks.
Let’s look at an example.
John and Peter have $15000 to invest with each and they both decided to buy shares of Apple Inc, AAPL, after it has dropped to $141 in October 2008, expecting a rebound. Peter decided to buy 100 shares with $14,100 and John decided to play it conservative and bought 1 contract of AAPL’s call options with strike price of $140 which was asking at $10.20 for a total price of $1020. 1 contract of call options allows you to control the profit of 100 shares of the underlying stock. In this case, John totally replaced the buying of 100 shares of AAPL with buying 1 contract of its call options. 2 weeks later, AAPL fell all the way to $85 as the recession deepened. Peter lost over $5600 while John lost only the $1020 that he spent buying the call options.
Assuming both Peter and John were right about AAPL and the stock rallies to $200. Peter would have made $5900 in profit while John would have made the same $5900 less the amount of $1020 that he paid for the call options.
See how buying stock options rather than the stock itself in this volatile condition allow you to make a few bets for a rebound without risking all your money? In the above example, Peter would only be able to make one bet once on AAPL with $15,000 while John would have been able to make those same bets more than 10 times at strategic support levels. Who would have a better chance of winning?
By replacing the purchase of stocks with controlling the same number of shares of that stock through its call options, you would definitely have a better chance of survival in this recessionary market condition. Be warned however, that you fully expect to lose the entire amount of money paid on the call options should the stock continue to go down, which is why you NEVER use all your money in a single trade.

Selling Options â is it the Holy Grail of Investments?

admin — Thu, 31 Dec 2009 21:27:38 +0000

Option sellers believe that if it’s not, it’s probably the closest an investor will ever get to the long sought Holy Grail of Investments or what is considered to be the ideal investment.

Let’s take a look and see what exactly is regarded as the ideal investment.

When asked to define what the ideal investment is investors have various versions of what they consider to be the ideal investment or the Holy Grail of Investments. In the ultimate analysis, with few exceptions, most investors feel that an ideal investment should provide the following qualities: safety of capital, consistent high returns, immunity from economic and market fluctuations and finally, liquidity, or availability of funds should the investor find an immediate need to tap his resources. Safety of capital and high returns seem to be the most desirable of all yet these two are totally opposing qualities in any investment. As the saying goes, the higher the risk, the greater the reward or inversely, the lower the risk the smaller the reward.

That said let’s explore our choices. Until the advent of options there appeared to be nothing that came even close to being called an ideal investment let alone be called the Holy Grail of Investments. We had to face the fact that investments were either low risk low reward or high risk high reward. Some investments were somewhere in the middle ground but few or none were in the Holy Grail category. Investors may be classified into two groups, passive and active investors. Passive investors prefer entrusting their capital to third parties and doing nothing more than expect returns from their investments either on a regular basis or value appreciation over time. They put their money into a fixed return instrument such as passbook savings accounts, money market funds, treasury bills, certificates of deposits, bonds and included in this lot are dividend paying stocks and mutual funds. Then there are the other passive investors that prefer to place funds into long term appreciation assets with capital growth as their main goal. Examples of these types of investments would be real estate, precious metals, arts and antiques. All these investment instruments while delivering small returns on a year-on-year basis do offer much safety of capital.

The active investor on the other hand is a more adventurous individual. He seeks high returns for his money, hopefully at reduced risk, by actively being involved in trading the markets, be it real estate, stocks, bonds, commodities, futures, foreign exchange, options or whatever else can be traded and made money on. Although more of a risk taker he nevertheless tries to moderate his risk exposure by restraining his profit objectives or rates of return on his capital. While passive investors are happy with annual returns of 6 to 10 percent, active investors seek higher rates of over 12 percent and more like in the region of 14 to 18 percent per annum. Is this doable? Yes, it is and many are happy actively trading the markets and achieving these returns using their own trading techniques that somewhat controls risk to an acceptable degree. Now here’s the shocker. Option traders are able to generate annual profits in excess of 20 percent without exposing themselves to any more risk that those achieving 14 percent. Now here is an even greater shocker. Among those that trade options the ones specializing on the selling side generate annual returns in excess of 30 percent with many averaging annual returns in the region of 40 to 50 percent without increasing the risk factor any more than the passive investor!

Foreign currency traders as well as commodities and futures traders sneeze at this claim saying that they can outshine the option seller in annual returns. True. But can they claim to do so at the same risk level as the passive investors? Most probably not.

Selling options (stocks, commodities, futures, etc) has become for many the Holy Grail of Investments. To the experienced option seller this trading strategy offers high, consistent returns, a fair degree of immunity against economic and market fluctuations, liquidity, and finally safety of capital. This last claim may be open to debate from non-believers in this trading strategy. To be fair let’s qualify the safety claim by saying that the inexperienced option seller is open to potentially heavy losses if he does not know what he is doing. But to the seasoned trader selling options is a safe investment strategy delivering all the qualities of an ideal investment to the point where successful option sellers claim to have found what to them is the closest one can ever get to the Holy Grail of Investments. Selling options on stocks, which is the specialty of this writer, can be particularly rewarding using a carefully planned trading system combined with disciplined money management and with proper safeguards in place. There are many trading strategies in selling options. Some are simple enough, like the covered call technique, delivering fairly decent returns while others are more complex but more rewarding. There is one option selling system developed by this writer that can be carried out as a long term investment program offering a fair degree of safety and delivering consistent high returns time after time. By using a carefully planned, three-pronged system of trading, the risks associated with selling options can easily be conquered.

This writer has mastered this three-pronged trading technique and anyone wishing more information may visit his web site at http://www.theoptionseller.com

Stock Options Trading: the ‘lean’

admin — Tue, 29 Dec 2009 08:49:47 +0000

Professional traders use the term “lean” to refer to one’s perception about the directional strength of the stock. When you own a stock and intend to hold it for a period of time, you are aware that you will probably be holding it while it goes up and while it goes down.

This means that at any given moment in time, you might have a different opinion of the potential movement of that stock. Knowing this, there is a way to address your present level of confidence or “lean.” You do this by your choice of which option you sell.

While it is true that the at-the-money option has the most amount of extrinsic value, it might not always be the ideal option to sell in every situation.

For instance, if you feel that the stock itself has a very high chance of producing capital appreciation above the potential amount of premium you could receive from selling an at-the-money call, then sell an out-of-the-money-call so you can allow yourself a little more room to the upside on the stock.

For example, let’s say the stock is trading at $27.00. Normally, you would sell the 27.5 calls at say $1.00. If the stock were to rise quickly and eclipse the $28.50 mark, then with the buy-write strategy, your position would have maxed out at $28.50, and you would have a $1.50 one month gain. Not bad, but if the stock went to $29.50 then you would have missed out on another $1.00 profit. However, if we had sold the 30 calls for $.30 then we would have another outcome. You bought the stock at $27.00 and sold the 30 calls for $.30 and the stock goes to $29.50.

You would have made $2.50 in capital appreciation and $.30 in option premium for a total of a $2.80 return.

So, if you feel the stock has a real good shot at taking a run up, you can lean your position long by selling an out-of-the-money call.

If you have a more neutral view on your stock you would sell an at-the-money-call in order to receive a bigger premium which allows for greater downside protection if the stock trades down and higher potential profit if the stock becomes stagnant.

This strategy also works on the downside. If, by chance, you feel that the stock may trade down a bit during the life of the option, then you can sell an in-the-money-call. The effect of this would be to provide you with a little extra premium to cover more downside risk.

Remember when you sell an option you seek to capture extrinsic value. An in-the-money option not only has extrinsic value but also some intrinsic value.

When you feel that you want to lean your covered call strategy (buy-write) a little short, choose to sell an in-the-money call so you can also have some intrinsic value to cover your downside.

As an example, say your stock is trading at $29.00 and you feel that your stock may trade down a little but still remain in an uptrend cycle. You don’t want to get rid of the stock but you also don’t want to lose any money so you sell the 27.5 call at $2.00.

The stock starts to trade down and finishes at $26.00. If you had owned the stock naked, then you would have lost three dollars since you owned the stock at $29.00 and it closed at $26.00 on expiration.

However, because you sold the 27.5 calls at $2.00, you would only realize a $1.00 loss in the stock. The premium received will offset the loss due to the fact that you identified and adjusted for a likely move.

As you can see, the buy-write strategy can be altered to fit any directional view you have on your selected stock.

Finally, if you intend to use the buy-write strategy successfully, you generally need to sell the calls against your stock on a consistent, recurring interval, over a period of time.

This means that you will have to be prepared to “roll” your calls out to the next month come expiration. Sometimes, all you’ll need to do is to sell the next month out call.

The Golden Rule Of Stock Options Trading

admin — Sun, 06 Dec 2009 08:44:21 +0000

Have you ever lost all your money in Stock Options trading?
If you are like most of us, then you might have lost an entire trading account just trading stock options before. No matter how hard you try, you seem to always lose all your money eventually even if you made some initial profits. Why is that so?
The truth is, stock options trading is risky business! Why is it risky business? Stock options trading is risky because you could lose all your money on any stock options trade if the stock eventually close with the options out of the money during expiration! Yes, even stocks that seem to be rising very quickly and steadily could take sudden and unexpected drops near expiration, taking your in the money call options way out of the money before you can react to it! This means that no matter how certain you are in stock options trading, there is always the possibility of a total loss. Stock options are fantastic leverage instruments but if you simply throw all your money into every trade and hope to strike lottery, then stock options trading would one day wipe out your entire account in one fell sweep.
So, how do we avoid such a predicament?
Simply by applying the golden rule of stock options trading! That is:
Use Only Money You Could Afford To Lose!
Yes, if you could afford to lose only 10% of your account at any one time, you should use no more than 10% of your account on any single stock options trade! This rule is especially important if you are trading out of the money options which have an incredibly high chance of expiring worthless.
For example, if you have a $10000 account and you do not wish to lose more than $1000 at a time, $1000 should be the amount you use on any single stock options trade. Simple as that! The obvious drawback of this rule is that you will not make as much money as you would have if you had simply punted all your money on a single trade, however, just like you would never bet all your money on a single gamble, you should also never put all your money into a single options trade no matter how confident you are! In fact, this applies to any form of trading as well. It takes a little discipline to stick to this rule especially if you are “on a roll” and tempted to go for a “show hand”. Let me assure you that there never is a problem with making lesser money but there always is a problem losing more money!
In fact, when you are using only money that you could afford to lose in stock options trading, you sleep better knowing that you cannot lose more money than you have decided to lose! Your holding power becomes greatly enhanced and you could ride out temporary downturns better than those stock options traders who punted all their money in one trade. This consequently translates to a higher chance of a win as most stocks eventually come back profitably after temporary pullbacks!
So, stick to the “Use Only Money You Could Afford To Lose” golden rule of options trading and you will be safe in your journey to financial success with stock options trading!

Long and Short Butterfly Trading

admin — Fri, 04 Dec 2009 20:48:33 +0000

The Butterfly is an option position that is composed of 2 vertical spreads that have a common strike price. In other words, butterfly trading involves an opening position where options (either calls or puts) are bought (or sold) at 3 different strike prices. The way in which these options are created makes the butterfly a position that has both limited losses and limited profits.The Long Butterfly can be created using either all call options or all put options. Due to put-call parity, a long butterfly created using call options will behave like a long butterfly created using put options. In other words, it doesn’t really matter whether you use calls or puts to create your long butterfly. Our example here will focus on the version using call options.The long butterfly can be created by buying an In-the-Money (ITM) call option, selling 2 At-the-Money (ATM) call options and buying another Out-of-the-Money (OTM) call option. This is actually a combination of 2 opposing vertical spread options, hence why the butterfly is also known as the butterfly spread.Combining the profit profile of these 4 call options, you will find that if the stock price falls, you will face limited losses (which is the initial premium you paid for the entire butterfly trade). Similarly, if the stock price climbs too high, you will also face limited losses. However, if the stock price stays around the vicinity of the ATM option strike price, you will receive limited profit.This makes the long butterfly a good neutral option strategy for low volatility, since you are betting on the stock price not moving much in order to collect maximum profits. It is also a low-risk strategy, since your losses are limited if the stock crashes or climbs unexpectedly. Unfortunately, this is accompanied by limited profits as well. As has been mentioned above, the long butterfly can also be created using all put options instead of all call options.A Short Butterfly is the exact opposite of the long butterfly. Instead of buying an ITM call, selling 2 ATM calls and buying an OTM call, a short butterfly is constructed by selling an ITM call, buying 2 ATM calls and selling an OTM call. As before, the short butterfly can be created using all put options instead of all call options.The short butterfly’s profit profile is the opposite of the long butterfly’s. If the stock price falls, you will receive your maximum limited profits (which is the initial credit premium you received when opening the short butterfly position). Similarly, when the stock price climbs, you will also receive limited profit. However, if the stock price doesn’t change much, you will face a loss, though that loss is limited as well.As can be seen from the above description, the short butterfly is meant to be a strategy that is high in volatility but neutral in direction (ie. you expect the stock to move a lot, but do not know in which direction). As a side note, this might not be the best strategy for you if you are indeed expecting high volatility and are uncertain in stock price direction. Both the Straddle and the Strangle strategies also have the same lean towards high volatility and neutral direction, but with the extra benefit that they have the potential for unlimited profit. However, the benefit of the short butterfly is that it is a credit position where you pocket the initial premium when creating it.One warning about both long and short butterfly trading: these positions involve buying and selling options at 3 strike prices. For most option brokers, this means you will be paying 3 commissions to open the position, and another 3 commissions to close it. You will need to consider these extra commissions (which differ from broker to broker) when trying to determine if the butterfly will be profitable for your circumstances.For a more detail and illustrations on butterfly trading, please visit: http://www.option-trading-guide.com/butterfly-trading.html

Options Trading in Extremely Volatile Markets

admin — Sun, 29 Nov 2009 05:14:33 +0000

The recent stock market crisis (2008) not only rocked the financial system and the world economy but also the pockets of countless options traders all over the world. Options traders who used to profit in the years prior to this market crisis broke their bank as none of their options strategies seem to work in this market anymore. So what is it about extremely volatile markets and how should one profit through options trading under such conditions?
Extremely volatile market conditions not only produce unpredictable short term stock price swings but also open up the bid ask spread of individual stock options due to a lower liquidity and profiteering by market makers. This combined effect not only made it doubly hard for options traders to make a profit. Volatile options strategies, supposed to be meant for such conditions due to their ability to make a profit when the market moves up or down strongly and their ability to profit from an increase in volatility, also failed to produce any consistent profits due to the higher premium outlay and wide bid ask spreads, soaking up most of the profits. Unexpected rallies also crunch volatility to the extent of producing losses through decaying the premium of long legs at express speed. Short term (weekly, monthly) directional options strategies fared even worse as it not only became almost impossible to predict short term price swings but the high premium and bid ask spreads also took most, if not all, of the profits away even if the stock did move in the expected direction.
So what works in an extremely volatile market condition such as this one?
First of all, let’s look at all the different ways to trade options. There are 3 main options trading methodologies; Swing Trading, Position Trading and Day Trading.
Swing trading is a directional options trading methodology that aims to pick stocks that will move quickly and strongly within a short period of time in a predictable direction and then execute bullish or bearish options strategies in order to profit from these moves. As mentioned before, trying to profit from directional swing trading in an extremely volatile market is like swimming against the tide. Not only is directions hard to predict in the first place but the high options premium along with gapping bid ask spread all work against its favor.
Position trading is more complex than Swing Trading as it aims to profit mainly (although there are also position trading strategies that are directional in nature) from volatility or premium decay through putting together several different options and / or stocks in order to produce a hedged, market neutral position. Position trading has produced some pretty profitable results for me in this market crisis as volatility soared and options premiums are high. This puts the disadvantages of an extremely volatile market condition in the favor of the options trader. Such positions include dynamically hedged delta-neutral as well as delta-gamma-neutral positions. Both of these position trading strategies aim to neutralize market movement such that unexpected swings do not affect the position significantly while the position safely takes the high options premium on the short legs into your pockets.
Day trading is an extremely dynamic options trading method where options are bought and sold very quickly within one day in order to profit from the slightest intraday price swing or change in volatility. This strategy was a pretty hard one to profit from in low volatility market conditions as prices doesn’t change enough within a day to produce significant profits. However, day trading becomes extremely profitable in the hands of seasoned options trading veterans in extremely volatile market conditions such as this market crisis as the Dow itself has produced intraday trading ranges of up to 10%! Yes, this is the kind of trading range and price range that cannot be realized in normal market conditions. Day trading often takes the form of simply buying or shorting call or put options and then quickly covering them when profitable. Day trading also avoids the extreme overnight uncertainties that so often catch swing traders by surprise in this market crisis. Sudden overnight good news can often gap the Dow up by a significant amount and closing it over 10% higher. This can wipe out all your profits if you had been betting in the opposite direction overnight. Day trading, however, is extremely risky for beginners in options trading as the price movement is so fast and dynamic that when things happen, beginners may not know what to do and be able to do it quickly. This is therefore not recommended for beginners.
So, there you have, 2 ways to profit from this market crisis through options trading which I have used profitably. Options trading (http://www.optiontradingpedia.com) is definitely profitable under any market conditions as long as you use the right method for the prevailing conditions.