Tag: options

Options Trading Success With MarketClub

Posted on by The INO.com Team

Todays Trader’s Blog guest is Trader Travis, owner of Learn-Stock-Options-Trading.com. Like many of you, Travis spent a good bit of time looking for a trading system that fit his style and mindset that could supplement his income. During his search, Travis stumbled onto MarketClub, and has developed an interesting way to incorporate it into his trading style. We think you will really enjoy this article regarding his trading experiences. Be sure to comment with any questions for Travis, or add your own MarketClub tips and tricks in our comments section.
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I hope you've enjoyed the Learning Options series that MarketClub has provided for you.

Today I wanted to share my personal experiences with using MarketClub as an options trader. In my humble opinion, options trading success with MarketClub comes down to 3 primary things:

•    Trade in the same direction of the general market (Dow, Nasdaq, and S&P)
•    Only trade when the stock and the general market both have strong trends either up or down
•    Then sit back and allow the trade triangles to guide your entry and exit points

Seems rather simple and common sense, but you'd be surprised how many of us don't use common sense in trading. Now the Silver ETF seems to be its own market and seems to play by its own set of rules so here is an example of how a real trade played out… Continue reading "Options Trading Success With MarketClub" →

Traders Toolbox: Learning Options Part 4 of 4

Posted on by The INO.com Team

In real estate, they say that the three most important things are location, location, and location. In options, the three most important things are volatility, volatility, and volatility. Often neglected by option rookies, volatility is the cornerstone of an option professional's trading strategy.

In its simplest form, expressed as the annualized percentage of the standard deviation, volatility measures how far a contract can be expected to swing from a mean price. A contract trading at 50 would have a volatility of 10% if it traded between 45 and 55 over a given period of time.

Historical volatility is just that: the volatility calculated (using closing prices) over a given period – 20 days, 20 weeks, one year, etc. Implied volatility is the volatility using current market prices. For example, using four primary option pricing inputs – futures price, settlement price, time until expiration and volatility – would result in a theoretical price.

By plugging in the current option price in place of the theoretical price and working backward, it would be possible to determine the volatility the current market is implying. (It is not mathematically possible to work backward and solve for implied volatility using an equation like the Black-Scholes model, but an approximation can be derived.)

Options on quick-moving, highly volatility contracts will demand a higher premium because of the increased possibility of such options being in-the-money. For example, an out-of-the-money option on a slow, non-volatile contract will have a lower premium than a comparable option on a volatile contact because there is a greater chance the volatile contract will shirt in price enough to put the currently out-of-the-money option in-the-money.

Astute options traders look at volatility figures to evaluate the potential of a trade, buying or selling options when volatility is exceptionally high or low. If a market is trading at historically low volatility levels, options premiums could be expected to rise as market volatility increases, presenting a buy opportunity. The revers is true for high volatility situations.

We hope that this short lesson series was helpful, and that you learned a little more about trading options!

Best,
The MarketClub Team

Options - Learn The Greeks

Posted on by The INO.com Team

We had such positive feedback with the options short lesson series that we're running this week, so we decided to search for a related seminar...and we found one! Expert Ron Ianieri has decided to share his seminar, Options - Learn The Greeks, for FREE as a special tread to MarketClub and INO.com users. You do not want to miss this educational seminar about risk and investment.

No matter what the investment, an investor needs to know and fully understand the potential risks of the investment prior to committing capital to that investment.

Discover what has aided this trader’s success for years…

-The MarketClub Team

Traders Toolbox: Learning Options Part 2 of 4

Posted on by The INO.com Team

Many people like options because they believe them to be less risky than futures. Options sometimes offer reduced risk, but usually at the cost of reduced profit potential.

One drawback of options is that a trader must consider market speed (volatility) as well as direction. Traders who buy or sell options outright to profit from up or down moves in the underlying market can find themselves fighting an uphill battle against volatility and time decay. With futures, if you're right about market direction, you'll win. With options, you can be right about the market and still lose.

If a market is trading at 200 and you buy a 210 call expecting a rally, you'll still lose on the trade if the market only rallies to 205 by expiration; your 210 call will be worthless. The same thing would happen even if the market rises as high as 220, but does so one week after expiration. In each case you would be right about market direction but would not profit.

The advantage of options is their flexibility. Because of the variety of strike prices and expiration dates a trader can choose, options naturally lend themselves to spreading strategies (simultaneously buying an selling different options), accommodating varying views of market direction and risk levels. Traders can design option strategies that will profit if the underlying market goes up or down, moves in either direction by a certain degree or remains unchanged.

Options also allow you to profit without predicting market direction because of time decay and fluctuation in volatility that increase and decrease premium. For example, a trader might sell as out-of-the-money call on a relatively volatile futures contract he thinks will fall. Over then next two months, however, the market does not fall, but gradually moves higher, trading in a narrow range (but still below his strike price). The trader was wrong about market direction, but finds the combination of decreased volatility and time decay has eroded the value of his option to the point that he can buy it back at a profit (or perhaps hold it until expiration).

Part 3 will be posted on Thursday (5/12/11). Do you like this short lesson series? Let us know in our comments section.

Best,
The MarketClub Team

Traders Toolbox: Learning Options Part 1 of 4

Posted on by The INO.com Team

There are four components to an options price: underlying contract price, intrinsic value ( determined by strike price), time value (time remaining until expiration) and volatility. (A fifth element, interest rates, also can affect option prices, but for our purposes is unimportant.)

Intrinsic value refers to the amount an option is in-the-money. For example, with Eurodollar futures at 95.55, a 95.00 call has an intrinsic value of .55. The more an option is in the money, the greater its intrinsic value. At-the-money and out-of-the-money options have no intrinsic value.

Options are referred to as "wasting" assets because their value decreases over time until it reaches zero at expiration, a process called time decay. Time value refers to the part of an option's price that reflects the time left until expiration. The more distance an option's expiration date, the greater the premium because of the uncertainty of projecting prices further into the future.

Considering two equivalent call options. Let's say for example, that with May corn futures at 232 1/4, July corn futures at 236 1/4 and 10 days left until May corn options expire, a May 230 call might cost 2 3/8 while a July 234 call costs 6 1/2, even though they are equally in-the-money.

Volatility, perhaps the most important and most widely ignored aspect of options, refers tot he range and rate of price movement of the underlying contract. The "choppier" the market, the higher the price that will be paid for this unstability in the form of higher option premiums.

Volatility usually is expressed as a percentage, and is comparable to the standard deviation of a contract. Higher volatility means higher premiums. Lower volatility means lower premiums. A trader familiar with the volatility history of a contract can gauge whether volatility at a given time is relatively high or low, and can profit from fluctuations in volatility that will in turn increase or decrease option premium.

The Black-Scholes price model, first introduced by Fischer Black and Myron Scholes in 1973, is the most popular theoretical options pricing model largely because it was the first relatively straightforward arithmetic method for determining a fair value for options.

Part 2 will be posted tomorrow, so stay tuned!

Best,
The MarketClub Team