A volatility chart tracks the volatility ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œlevelÃƒÂ¢Ã¢â€šÂ¬Ã‚Â 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 [...]
Historical volatility (also called realized volatility or statistical volatility and often designated by ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œHVÃƒÂ¢Ã¢â€šÂ¬Ã‚Â) 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 [...]
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) [...]
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 [...]
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.
OEX is the world’s first optionable index options contract. The CBOE listed options on the index is 1983.
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.
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 [...]
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. [...]