Options trading, like all investing really, is about decision making: weighing the potential reward against the potential risk, and the probabilities thereof. But isn’t that life in general? By some estimates, the average human makes 35,000 decisions in a typical day. Whether you believe that statistic or not, let’s just agree that we make a […]

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You probably know you should have a trade plan in place before entering an options trade. But what does that really mean? Here are a few ideas for creating your own trade plan, along with some of the order types you can use to implement it. Basically, a trade plan is designed to predetermine your […]

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Many investors and traders venturing into the world of options begin with single-leg options strategies. These basic strategies—buying and selling calls and puts—can help new options traders understand the mechanics of options trading, as well as the objectives of such strategies: Risk managementLeverageThe potential to generate income Basic strategies can also help new options traders […]

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Key Takeaways Learn the rights and obligations of buying and selling call and put options Understand the risk and return profiles of long and short call and put option positions Options give traders, well, options. But options aren’t just for traders; they can give qualified investors options, too. Investors use them to manage risk and […]

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Key Takeaways An option’s delta and gamma reflect its sensitivity to changes in the price of the underlying An option’s theta measures how its price changes with the passage of time An option’s vega reflects its sensitivity to changes in implied volatility Seasons change, four times a year to be exact. As each year progresses, […]

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Key Takeaways Option volatility skew illustrates which direction the implied risk lies in an underlying security The rule of 16 can help investors determine whether market movement and measured volatility are in line Modern investors get frequent updates on where the Cboe Volatility Index (VIX) is trading. Some even refer to the VIX as the […]

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Key Takeaways Options market makers are professional traders, paid to provide liquidity to the market The competing objectives of different market players, such as market makers versus retail traders, can make for a vibrant, liquid marketplace Options market makers don’t hold the secret formula. They’re just doing their job. In The Wizard of Oz, Dorothy […]

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Key Takeaways Consider limiting option trade candidates to those with defined-risk Learn how to assess the probability of a trade being in-the-money or out-of-the-money at expiration Determine whether or not a trade has positive time decay (“theta”) The following is strictly for educational purposes only. It is not, and should not be considered, individualized advice […]

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Key Takeaways Buying calls and selling puts are bullish-biased strategies; buying puts and selling calls are bearish-biased strategies Buying options limits your risk of loss to the premium paid for the option, plus transaction costs Selling options limits your potential gain to the premium received, minus transaction costs I played rugby in college and sporadically […]

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Key Takeaways Consider “high-probability” options strategies in liquid products Making smaller but perhaps more frequent trades might make your overall risk less concentrated Remember that more trades means higher transaction costs What does grilled chicken breast with red onions and spinach in a feta-cheese béchamel have to do with an options spread? When you dine […]

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