How To Read Option Volatility Skew to Understand Future Expected Moves
As a follow up to our Introduction to Skew, we will dive deeper into what skew can look like for different types of tickers and under different scenarios. We will talk about the implications of what we see and how we can use this to improve our trading decisions. Key Takeaways What Does Skew Look […]
Introduction to Options Skew – A Game Changer for Option Sellers
When we look at the option chain for any given company, we have two primary dimensions that we can look across. The first is time, which is represented by the different expirations. The second is underlying price, which is represented by the different strike prices available on each expiration. Both the expirations and the different […]
What is an Iron Butterfly and How Do You Trade Them – A Comprehensive Guide for Option Sellers
So you want to sell volatility but aren’t comfortable holding the unlimited loss exposures that come with a short straddle or strangle. This is where our trusty tool the iron butterfly comes into play. I’m not going to sugar coat it and say that they are the best way, because they aren’t. If you are […]
Kelly Criterion Trading – How To Manage Your Bankroll To Maximize Your Returns
When running a trading strategy doesn’t it always seem like you either bet too big and risk blowing up, or you bet too small and leave money on the table? This is why one of the most important things about trading is bankroll management. Bankroll management can make or break your trading strategy, turning a […]
Understanding Autocorrelation – A Key Characteristic for Predicting Future Option Prices
Autocorrelation is one of the characteristics of volatility that help us understand how it moves and changes over time. If you’re new to the term, don’t worry—we’ll break it down and explain how it can significantly impact the way you think about option selling. By the end of this post, you’ll understand what autocorrelation is […]
Implied Volatility Explained – The Lens Of Option Trading
As an option seller, the most important concept that we need to understand is called implied volatility. This is the concept that once understood will really start to move the needle on your option selling skills. The reason implied volatility is such an important concept is because options are volatility products. The reason they exist […]
Two Ways to Price Option Premiums: A Masterclass In Option Selling Strategy
The entire game of trading options is about pricing the variance risk premium that is embedded into the option price. If you are able to identify areas where the options are trading at a different price than what they should be, you have found a good trading opportunity. Most of the time, forecasting option prices […]
How to Trade Vertical Spreads -An Option Trade For Betting on Direction While Leveraging Volatility Skew
One of the most beautiful parts of trading options is that you can create a structure to express your exact view on the market. For example you could literally express the view “I think the stock is going to trend down but not as aggressively as implied by the market”. If this is the view […]
What is Theta In Option Selling – The Cost of Holding an Option Over Time
Theta is the greek that most option sellers are familiar with because it tells us about how much we are getting paid each day when we sell an option. Theta represents the daily loss in the value of an option due to the passage of time, assuming all other factors remain constant. Key Takeaways What […]
How to Trade Iron Condors – Ultimate Guide For Option Sellers
One of the hardest hurdles for retail traders to overcome when they look at the world of option selling is the idea of carrying the unlimited risk exposure that is technically a part of your position when you selling a straddle or a strangle. It makes sense that we would have a natural aversion towards […]
What Does Delta Mean In Options? – Controlling Direction When Selling Options
Delta is one of the option greeks that every option seller has heard of, but may not fully understand. It’s one of the most important concepts that option sellers have to be familiar with because we need to understand it in order to structure our trades correctly and manage them properly. Failing to understand how […]
Worried About Early Assignment in Option Selling? It’s Not As Scary As You Think
One of the biggest fears that I hear expressed by option sellers is: “What do I do if I get assigned early!” Exercise and assignment are a real part of the option market, so the idea that this could happen to you is very real, and especially as your trade approaches expiration, there will be […]