How to collect big profits from a volatile options market Over the past decade, the concept of volatility has drawn attention from traders in all markets across the globe. Unfortunately, this scrutiny has also created a proliferation of myths about what volatility means and how it works. Options Volatility Trading deconstructs some of the common misunderstandings about volatility trading and shows you how to successfully manage an options trading account and investment portfolio with expertise. This reliable guidebook provides an in-depth look at the volatility index (VIX) and demonstrates how to use it in conjunction with other analytical tools to determine an accurate measure of investor sentiment. However, recognizing a trend isn’t enough. In order to give you everything you need to profit in the options market, Options Volatility Trading also features:Detailed analysis of historical volatil (more…)

Options traders make money any time the market moves, no matter whether it goes up or down. Now, with this primer created from Natenberg’s bestselling video course, Mastering Option Trading Volatility Strategies, it has never been easier for traders to gain a powerful understanding of the potential of volatility trading strategies. Since the inception of options only a few decades ago, many have sought to harness the key element of options trading volatility. No one is more synonymous with volatility trading strategies than Sheldon Natenberg. Renowned for his influence on nearly every option trader through his classic work, Option Volatility and Pricing, this legend in trading success is in great demand for his ability to harness market forces through his calculated approach to trading. Now, in a groundbreaking new approach, Natenberg personally guides you through the key elements of option valuation and volatility trading strategies. Written in an amazingly ac (more…)

Each option has a so called strike price. This is the price at which the option contract has been written. Every option has a whole series of strike prices from which you choose the one you feel is the most appropriate. Most options are written on a monthly basis, so at any one time there will be a series of options spread over several months into the future. Every option is issued with a spread of strike prices from very low to very high. The increment of the strike will vary according to the underlying value of the share. For a low value stock, the increments might be in $1 amounts, but for a higher value stock these could be $5 or $10 steps. The series of options is called an option chain, and each chain will cover several months. Some series are written quarterly and others on a monthly basis.

The strike price is normally presented in the middle column, with calls to the left hand side and puts shown on the right hand side. The first column labeled ‘symbol’ shows the unique code for that particular option. These are unique to the contract, the period and the equity, and can be found on many sites. When trading they normally appear as part of the trade – it is not something you have to remember! The next column is the ‘last’ , which displays the most recent prices which have been bid.

The bid and ask prices are simply the buying and selling prices of the premiums, with the ‘vol’ column showing the number of trades for that particular day. The final column is normally one labelled OI, which is short for ‘Open Interest’. This shows the number of contracts bought or sold and currently waiting for the expiry date.

An option is said to be ‘in the money’ if the strike price is below the market price for a call, and above the market price for a put. For example with a call if the strike price for the option was 500p and the equity was trading in the market at 550p, then this would be 50p in the money. (Remember a call increases in value as the underlying asset increases in price). With a put, this would be in the money for the same strike price if the equity was trading at 450p. These are normally highlighted in the chain to show their status. An option is ‘at the money’ if the strike price and market price are the same.

‘Out of the money’, is simply the reverse of being in the money. For example with a call, if the strike price was 500p and the equity was trading in the market at 450p, then this would be 50p out of the money. An option has intrinsic value if it is in the money and an at the money, or out of the money option, therefore has no intrinsic value.

Each chain will show the underlying equities current market value, along with the associated ticker and the number of days left until expiry.

Where can I learn how to trade options with consistent profits focused on Implied Volatility without Historical Volatility? Follow the link below, entitled “Consistent Results” to see a model retail option trader’s portfolio that excludes the use of HV and focuses on trading only IV. I’ll cite these actual historical events, to bolster the argument for removing Historical Volatility from your trading process altogether.27 Feb, 2007: Widespread Panic from the sizeable China sell-off in equities. If you were trading the options of an index like the FXI which is the iShares product of China’s 25 largest and most liquid Chinese companies though listed in the US; but they are headquartered in China, you would have been impacted. While you can argue it’s possible to have market events recreate the ranges of the Dow, Nasdaq & S&P, how do you recreate the scenario of the VIX and VXN soaring 59% and 39%?22Jan, 2008: Fed cuts rates by 75 basis points prior to the scheduled policy meeting on Jan 30th, whereby the FOMC cut another 50 basis points on the date of the meeting.  If you were trading interest-rate sensitive sectors using the options on a Financial ETF or a Banking Index like the BKX; or, the Housing Index like the HGX, you would have been impacted. And in the current environment of rates being near zero, the FOMC while they still have a rate policy tool, they are unable to cut rates by the same number of basis points like before. What was a historical event is not successively repeatable going forward, not until rates are raised again and subsequently they get cut again.Question: How do you reconstruct history?  That is the history of events forming Historical Volatility.  The answer is in the real examples cited, as with any other financially related historical event – you cannot reconstruct history. You may be able to mimic parts of HV but you cannot repeat it in its entirety.  So, if you continue using HV-IV crossovers, you visually confuse yourself by searching for volatility “mispricing” patterns that you would like to see; but, you will end up with poor profit performance instead.  It makes more practical trading sense to focus purely on IV; then, diversify the trading of volatilities across multiple asset classes beyond equities.Where can I learn more about trading IV across multiple asset classes using only options, without having to own stock? Follow the link below (video-based course), that uses IV Mean Reversion/Mean Repulsion and IV Forecasting, as reliable methods to trade the implied volatilities across broad-based Equity Indexes, Commodity ETFs, Currency ETFs and Emerging Market ETFs.