Episode I.
Is there a Trekkie out there who can help me out? I understand the Black-Scholes option pricing formula, but I just can’t comprehend Star Wars.
People with tents sleeping in line waiting to buy tickets to a movie. Not just any movie, but a movie that’s playing everywhere. Multiple theaters, gobs of seats, [...]
Have you ever traded an option before and lost money even though you got the direction right? Well you probably experienced a volatility crush.
A volatility crush is simply where an option moves from a period of high implied volatility to low implied volatility. The most common scenario is just before earnings. You will find [...]
The concept of option volatility is one of the most little understood and under utilised in option trading. But knowing about it can make all the difference to the profitability or otherwise, of your trading decisions. It should also be very influential in the type of trades that you decide to put on.
What is [...]
As with most books on the topic of how to trade options, the amount of material to get through can be daunting. For example, with Sheldon Natenberg’s Option Volatility & Pricing, it is about 418 pages to digest. There are adequate reader reviews on Amazon and Google Book Search, to help you decide if you [...]
Larry McMillan is an iconic Hercules of the options world. Few option titans have the depth and range of grounded insights to devote 630+ pages to a publication. Do not be overwhelmed by what initially appears as a titanic chronicle.McMillan commits extensive effort to clarify the proper use of misused trading terms. He rectifies inaccurate [...]
Not all volatilities are constructed equal. It is critical to differentiate between Historical Volatility and Implied Volatility, so retail traders learn how to trade options focused on what is material to theoretically price option spreads forward.Historical Volatility (HV) measures past price movements of the underlying asset recording the asset’s actual or realized volatility. The more [...]
The Implied Volatility (IV) of Calls needs separate treatment from the IV of Puts. Also, for specific options trading strategies treat the IV of both Puts and Calls as a combined bundle.Each option at each strike implies its own individual percentage value of the underlying product’s future volatility. This makes it unique from any other [...]