In trading, we have the bid-ask spread which is the difference between what buyers are willing to pay and what sellers are asking for in terms of price. Ask "Ask" is the quoted ask, or the lowest price an investor will accept to sell a stock. Options Trading system available We provide all you need: Name of Underlying Security, Strike prices, Expiration dates, Entry and Exit Prices. We created our market timing .
Maybe the results would be different if you checked on the one-day or two-day changes rather than the one-week variations, but that is something for someone else to check out. Today I would like to talk a little about an important measure in the options world — volatility, and how it affects how much you pay for an option either put or call. Volatility is the sole variable that can only be measured after the option prices are known.
All the other variables have precise mathematical measurements, but volatility has an essentially emotional component that defies easy understanding. If option trading were a poker game, volatility would be the wild card. Volatility is the most exciting measure of stock options. Quite simply, option volatility means how much you expect the stock to vary in price.
That is how much the market expects the stock might vary in price, either up or down, over the course of a year. You can see that the degree of stability of the company is reflected in its volatility number.
IBM has been around forever and is a large company that is not expected to fluctuate in price very much, while Apple Computer has exciting new products that might be great successes or flops which cause might wide swings in the stock price as news reports or rumors are circulated. Since ETFs are made up of many companies, good or bad news about a single company will usually not significantly affect the entire batch of companies in the index. An ETF such as OIH which is influenced by changes in the price of oil would logically carry a higher volatility number.
Since all the input variables that determine an option price in the Black-Scholes model strike price, stock price, time to expiration, interest and dividend rates can be measured precisely, only volatility is the wild card. It is the most important variable of all. If implied volatility is high, the option prices are high. If expectations of fluctuation in the company stock are low, implied volatility and option prices are low.
On a per-dollar basis, the eBay option trades for about three times as much as the JNJ option. Of course, since only historical volatility can be measured with certainty, and no one knows for sure what the stock will do in the future, implied volatility is where all the fun starts and ends in the option trading game.
The world of stock options is every changing. Last week, three new series of options were introduced. Last week, the CBOE announced the arrival of several new options series for our favorite ETFs as well as four individual popular stocks which have extremely high options activity. For the above entities, there are now four Weekly options series available at any given time.
In the past, Weekly options for the following week became available on a Thursday with eight days of remaining life. This is a big change for those of us who trade the Weeklys I know that seems to be a funny way to spell the plural of Weekly, but that is what the CBOE does.
No longer will we have to wait until Thursday to roll over short options to the next week to gain maximum decay theta for our short positions. The stocks and ETFs for which the new Weeklys are available are among the most active options markets out there. Already, these markets have very small bid-ask spreads meaning that you can usually get very good executions, often at the mid-point of the bid-ask spread rather than being forced to buy at the ask price and sell at the bid price.
This advantage should extend to the new Weekly series, although I have noticed that the bid-ask spreads are slightly higher for the third and fourth weeks out, at least at this time. The new Weeklys will particularly be important for Apple.
Option prices have traditionally sky-rocketed for the option series which comes a few days after their quarterly earnings announcements.
In the past, a popular strategy was to place a calendar or diagonal spread in advance of an announcement further-out options tend to be far less expensive lower implied volatility than those expiring shortly after the announcement, and potentially profitable spreads are often available. The long side had to be the newt monthly series, often a full three weeks later. With the new Weekly series now being available, extremely inexpensive spreads might be possible, with the long side having only seven days of more time than the Weeklys that you are selling.
It will be very interesting come next January. It is good news for all options traders. This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways and sometimes the woods.
Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA. I have been trading the equity markets with many different strategies for over 40 years.
Terry Allen's strategies have been the most consistent money makers for me. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses.
Please read Characteristics and Risks of Standardized Options before investing in options. Yes, you may use ETFs charts, but you will be limited strictly to price--based technical analysis. Don't limit your analysis. Most of the analyses above cannot be done on a single stock. As you can see, the index technical analysis can deliver a much greater benefit to your QQQ trading than a simple analysis of the QQQ price. Without an index analysis, you are trading like "a blind cat in a dark room.
Based on actual trades autotraded by major brokers Based on premium received for selling options short. Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.
Uncovered Options Trading System. With our index and stock charts you will be able to analyze all trend parameters: Our real-time charting technology allows to react quickly on trend changes. One single winning trade could pay for the membership for years to come.
Uncovered options trading involves greater risk than stock trading. You absolutely must make your own decisions before acting on any information obtained from this Website. The return results represented on the web site are based on the premium received for the selling options short and do not reflect margin. It is recommended to contact your broker about margin requirements on uncovered options trading before using any information on this web site.
Use our " Trade Calculator " to recalculate our past performance in relation to the margin requirements, brokerage commissions and other trading related expenses.
Uncovered Options Trading System. Just a single winning trade could pay for your membership for years to come!
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