Trading Education
Analyzing Volatility Part II: Volatility Charts
A volatility chart tracks the volatility “level†over time for both historical volatility [HV] and implied volatility [IV]. It is a helpful visual aide because it makes it easy to compare HV with IV both currently and over time. Though these are helpful aides, they are often misinterpreted by novice traders with unfortunate consequences. Volatility [...]
Analyzing Volatility Part I: Historical vs. Implied
Historical volatility (also called realized volatility or statistical volatility and often designated by “HVâ€ÂÂ) is the actual volatility realized by the underlying security, measured in terms of the magnitude of recent price movement. Specifically, HV is the annualized standard deviation of an asset. This figure is stated as a percentage of the asset price. Even [...]
Options 101: Anticipating Assignment
Knowing when to anticipate assignment is important when writing options and trading spreads. Assignment on many cash indexes only happens at expiration. That is, investors can only exercise “European style” cash index options at expiration (more on index options and settlement). Therefore, early assignment on the S&P 500 Index (.SPX), the CBOE Volatility Index (.VIX) [...]
Options 101: Rolling
A “roll”, in options parlance, is simply a position adjustment where an investor closes out a position in one options contract and opens a similar position in another contract.
Options 101: Debits and Credits
Debit: The premium paid for an options contract. The funds are debited from the traders account. If an investor opens a spread by purchasing Long Call A and selling Long Call B, where the premium paid for a Long Call A is greater than the premium received for Long Call B call, they have entered [...]
Options 101: The Quadruple Witch?
Triple Witching Day is the third Friday in March, June, September and December, which tends to see heavy volume, as it is the last trading day before the quarterly expirations of stock options, index options, and futures.
Options 101: What is the OEX (.OEX)?
OEX is the world’s first optionable index options contract. The CBOE listed options on the index is 1983.
Options 101: Understanding Implied Volatility
When there is a surge in demand for a specific options contract, it will often cause the premium to to rise and this is sometimes called a “volatility rush”. As the premiums get jacked up, the options become expensive or rich.
Options 101: ETFs Vs. Indexes
Have you ever thought about trading the Dow Jones Industrial Average? Two of the more popular ways of trading the 113-year old average: 1) the Dow Jones DIAMONDS, symbol DIA and 2) the Dow Jones Industrial Index, .DJX. Both are designed to equal roughly 1/100th of the Dow. So, at today’s levels, the industrial average [...]
Options 101: The Strangle
A strangle is an options strategy that includes the purchase (or sale) of both puts and calls. Like the straddle, both the puts and calls have the same expiration date. However, unlike the staddle, which includes puts and calls at the same strike price, the strangle consists of puts and calls with different strike prices. [...]
