Suppose you’re long a stock that has appreciated nicely, but you’re getting nervous that it may move lower. You don’t really want to exit the stock, but you’re not sure how to protect your investment. Or suppose you’re thinking about buying a rallying stock that looks like it still has some upside, but you want […]

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The following, like all of our strategy discussions, is strictly for educational purposes only.  It is not, and should not be considered, individualized advice or a recommendation. Options trading involves unique risks and is not suitable for all investors. Options traders can potentially make money in the market when one of two things happens: when […]

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So you’ve got an options strategy in a stock or exchange-traded fund (ETF)—say a covered call, a naked call option, or even a multiple-leg strategy like a call vertical spread—that’s humming along, and all of a sudden you receive notice that one leg, likely a short in-the-money call, has been assigned. Worse yet, it’s happened […]

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If you’ve ever flown a plane, or flown in a plane actually, you know that the captain doesn’t step into the cockpit at the last moment, hit the “takeoff” button and sail off into the sky. Not only have there been many hours of pre-flight preparation, from the flight and maintenance crews to the traffic […]

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Volatility is like a sunset. You’ve seen one, you’ve seen ’em all, right? Well, yes and no. Sure, volatility (“vol”) means how much the price of a stock or index might change. High vol suggests the market anticipates bigger potential future price changes. Low vol means the market anticipates smaller future price changes. Simple enough. […]

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Many options traders say that they trade a consistent quantity when initiating vertical spread trades. And while this strategy might keep the contract numbers orderly, it ignores the fact that each vertical spread has a different risk amount based on a few things: Is it a debit spread or a credit spread?  How wide is […]

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Many traders tend to gravitate to options strategies with positive theta—those in which the theoretical value increases with the passage of time. Certain positive theta spreads such as an out-of-the-money vertical credit spread or a short iron condor are sometimes referred to as “high probability” trades. But that doesn’t mean that long option strategies, which […]

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Editor’s note: Volanthology is a multi-part series on volatility, the various means of tracking volatility and incorporating volatility assessments into trading and investment research. Part 1 introduces historical and implied volatility, the VIX and other equity volatility indexes. When you hear the phrase “stock market volatility, what’s the first thing that pops into your mind? […]

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When trading stock, knowing the amount of capital you’re investing is as straightforward as multiplying the price of the stock by the amount of shares being traded. But when you trade listed derivatives, such as options and futures, the calculation is not always that simple. Although there are some standard parameters, each product has its […]

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If you’re a millennial, you may not remember a world without computers, and maybe not even a world without cell phones or the Internet. You might take it for granted, but you certainly have faster access to more information than any generation in the history of humankind. And, at the risk of oversimplifying, you’re also […]

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