Do the headwinds of time decay turn you off from buying single options on volatile stocks? Find out how you may be able to turn the headwinds into tailwinds by trading those stock moves.
We often hear about traders selling options. But why (or when) might a trader buy options?
Have you ever seen implied volatility drop so quickly that it killed your trade? Try these risk management ideas to manage volatility crush.
Return on capital and liquidity mean specific things in finance. But they can mean something different to an option trader. Read this options trading terminology guide to find out.
Have a single-leg option? Consider using a vertical spread to turn it into a defined-risk spread to lower the margin requirements and free up capital at the same time.
Market makers are professional traders typically on the other side of retail trades. And they're paid to take risk and provide market liquidity.
Trying to select the right options strategies, strikes, and expirations? Learn how to rank volatility using IV percentiles and see if changes are normal or unusual.
Learn about “black swan” events and how you can attempt to protect yourself and your portfolio from adverse shocks.
Learn how weekly stock options can help you target your exposure to market events such as earnings releases or economic events.
When trading options you will need to consider price, time, and volatility at the same time. That means understanding the interplay of a few options greeks and how they play off one another.
Implied volatility and vega both measure volatility but they have some differences. Here’s some insight from an education coach at TD Ameritrade.
Is the market pricing in a greater-than-typical move in a stock? Check the Market Maker Move indicator on thinkorswim®. Its magnitude can help inform your trading decisions.
Calendar options spreads can be effective during sideways markets and during periods of low volatility. Here’s how to set up and roll a calendar—and a rundown of the risks.
The value of an option tends to decay as expiration approaches. Learn about three options trading strategies that target time decay (“theta”).
A leadership change in the White House could mean a shift in policy priorities, but if you’re a long-term investor, other factors such as earnings, taxes, and interest rates may be larger concerns. Perhaps now’s the time for a post-election portfolio review.
Vertical spreads are fairly versatile when taking a directional stance. But what if you're stuck in a range-bound market? Consider the iron condor.
Trading stocks and options can play tricks on your mind. Control as much as you can to reduce the risks you can't control. Avoid these four trading mistakes.
Learn how the VIX, VIX futures, and VIX options work together to help traders increase market awareness, make more informed options trading decisions, and employ trading strategies.
How can skew offer insight into market sentiment? Implied volatility between out-of-the-money put and call options is almost always skewed depending on whether there’s panic to the downside or upside.
The Market Maker Move (MMM) indicates the expected magnitude of an upcoming move such as earnings. It can provide some useful info that you can use when trading options.
When deciding between trading credit spreads or debit spreads, it can be helpful to align the options strike prices and expirations with the level and direction of implied volatility.
Arbitrage helps keep financial markets efficient, often with the aid of complex algorithms, pricing models, and lots of capital. Here’s a look at three types—index arbitrage, volatility arbitrage, and bond arbitrage.
When a relationship between a pair of stocks, futures, or options gets out of line, pairs trading may offer potential opportunities. Here’s how some investors choose among many combinations of bullish and bearish positions.
Compared to covered calls and other basic options strategies, diagonal spreads don’t get a lot of love. But not only are they relatively straightforward, they’re also flexible and versatile. Here’s the story.
Volatility is a popular topic among option traders. But it can be confusing. Looking at volatility from the perspective of trading capital, past activity, and probability may help clear things up.
Apple announced a 4-for-1 stock split effective August 31, 2020. Find out what a stock split means for your outstanding stock and options positions from TD Ameritrade.
Hey, trader! Do you know all the trading tools in the thinkorswim® platform from TD Ameritrade? Some of our trader pros share their favorite features and how to use them.
Suppose you buy a call option at a given strike price. Now what? The Theo Price tool on thinkorswim can help you assess what it could mean for your trade if the underlying stock reaches your price target by a certain date, if it goes the other way, if implied volatility changes, and more.
The volatility Rule of 16 can be useful when figuring out how much an options price is likely to move especially during earnings. This can be helpful in planning trading entry and exit points.
Selling covered calls is a neutral to bullish trading strategy that can help you make money if the stock price doesn't move.
The global foreign exchange (FX) market is deep, liquid, and traded virtually around the clock. If you’re an option trader in search of a new asset class to trade, consider options on currency futures.
The effect of interest rates on options prices—rho—is sometimes considered the forgotten greek. But interest rates matter, especially when deciding when to exercise options positions.
Different volatility numbers tell you different things. Is one more useful than another? Let's find out.
Are you long or short an in-the-money call option on a stock that’s about to pay a dividend? Make sure you understand dividend risk.
Looking to pick stocks worth trading? You can lay the groundwork for a sound stock selection strategy with a few relatively simple components.
A small trading account shouldn’t stop you from trading like traders with large accounts. Here are three options trading strategies to let you trade lower-priced stocks with similar risk/return as more expensive stocks.
Ask the coach: Education coaches from TD Ameritrade answer questions from seasoned traders and newbies. In this issue, learn about the difference between implied and historical volatility.
When trading options on futures contracts, the number of choices available—delivery months and options expiration dates—can be overwhelming. Follow the volatility curve to help you whittle it down.
Should you switch from trading long options strategies to short options strategies when volatility levels are high? Sometimes prices are high for a reason.
Earnings season can be a time of higher-than-typical volatility, which can mean an increase in risk as well as opportunity. Learn some of the options trading strategies you might use during earnings season.
Even your best trading ideas won’t always go as expected. When you are looking at a losing position, employ game theory to guide you.
Theta can indicate many things but you can only depend on it after you have closed your trade.
Trading a stock around earnings day isn’t always simple. There tends to be volatility risk. It also helps to really know the company’s fundamentals.
Explore options statistics on thinkorswim—implied & historical vol and percentiles, the Sizzle Index, and the put/call ratio. Learn how options stats can help traders and investors make more informed decisions.
Learn how a collar strategy—a covered call and a protective put—might be a way to manage stock risk.
thinkorswim has developed an interface dedicated to researching the effects that earnings announcements have on the prices of stocks and options.
Can straddles be used in an options strategy around earnings announcements or other market-moving events? Yes, but there are risks and other considerations.
Learn how a long calendar spread can be effective in a low-volatility trading environment.
Once you’ve learned to use the Risk Profile tool on the thinkorswim® platform for single-leg options, you may wish to use it for more complex trades.
Learn how the put/call ratio is calculated and how to use the P/C ratio as an indicator of stock market sentiment.
Treasury bonds are boring, right? Wrong. For traders, they represent a market that can be bigger than stocks.
Options trading involves risk, but these risks can be analyzed, monitored, and simulated with the thinkorswim® Risk Profile tool.
Learn the difference between implied and historical volatility, and find out how to align your options trading strategy with the right volatility exposure.
Learn the differences between equity options and options on futures contracts, and how experienced options traders can use futures options to enhance their trading.
Learn about the dynamics of foreign exchange volatility, and where to find currency volatility data.
Do you follow the VIX as a volatility measure? Ever heard of the rule of 16? How about volatility skew? Learn how to apply these concepts to options trading.
The sensitivity of option prices to changes in time, volatility, and the price of the underlying are commonly referred to as “Greeks.” As you prepare for earnings season, here's an overview.
Implied volatility usually increases ahead of earnings announcements and then drops after the news release. If you know implied volatility is going to drop after earnings reports, here are three options trading strategies you could trade.
Learn how adjusting a collar strategy—a covered call with a protective put—can help you manage stock risk.
Learn how to turn a long butterfly spread—typically initiated with a debit—into a credit spread by adjusting one of the wings, aka a “broken wing butterfly.”
Options on futures are quite similar to their equity option cousins, but a few differences do exist.
Are you an option looking for a strategy designed for a lower-volatility environment?
Learn about the dynamics of foreign exchange volatility, and where to find currency volatility data.
Learn how to dynamically hedge changes in an option position’s delta in a process known as “gamma scalping.”
Some option traders dynamically hedge positions, but doing so requires a basic understanding of synthetic positions and put-call parity.
Learn about the VIX and other volatility indexes and how some investors use them to assess potential risk.
Learn about gamma, which some traders consider the positive side of negative theta.
Learn how to structure a trade designed for uncapped profit potential.
When stuck in a low-volatility environment, check out the term structure. You might consider alternative covered call strategies.
If you have a directional view on a stock price, buying a vertical spread might be for you. But deciding on strikes and strike widths requires some thought.
Learn the basics of put ratio spreads and how they can help you pursue your objectives.
Instead of hyper-focusing on one position at a time, look at your entire portfolio and try to figure out a better hedge—here's some tools and tweaks to help.
Some economic indicators create more noise than others—learn to create trading strategies based on how markets might react to economic data.
Looking for opportunities amid a low volatility trading environment? Learn about calendar spreads.
Learn some of the option trading alternatives you can use during earnings season.
Learn how a collar strategy—a covered call and a protective put—might be a cost-effective way to manage stock risk.
Learn how to stress test an options position by assessing changes in theoretical value under changes in volatility, time and price of the underlying.
The sensitivity of option prices to changes in time, volatility, and the price of the underlying are commonly referred to as “Greeks.” Here is an overview of
How using Kurtosis to study abnormal market behavior—in particular how it explains the price behavior of options—can aid in your strategy selection.
Learn how an trading an iron condor can be an effective options strategy during earnings season.
Managing risk variables you didn’t know you could control—lessons learned in 2016 about direction, time, and vol, and what mistakes to avoid this year.
Learn how to increase the flexibility of your existing options strategies with weeklys: options that move quickly and live for about a week.
Laddering price, volatility, and time can take covered calls to a new level—look to collect more premium and diversify across vol and time.
The market doesn't care who becomes president, and savvy traders don’t care about predictions—just results. Prepare yourself for either scenario.
Stocks can be expensive, no doubt, but that doesn’t necessarily mean you can’t participate in rallies. Learn how call options can act as a substitute for stoc
Why trading in high-priced stocks may be no riskier than their low-priced brethren, and how to calculate that risk with implied volatility.
Zero skew, or even negative skew, can be favorable. Once skew starts rising, options traders might want to think twice before entering a calendar spread.
When discussing the markets, there’s a common question among investors and traders: What’s your position?
For most traders, fear and uncertainty are primary factors that drive volatility in markets higher and lower.
Expand option market learning to weekly double calendars. They can increase in profitability if implied volatility rises.
Explore rolling options “losers” to extend duration for covered calls, naked calls or puts, one side of a short strangle, and select other trades.
The six-year-old rally has produced monster stocks. How do you get involved when the altitude makes your stomach quiver? Ratio spreads might be the answer.
Consider straddle/strangle swaps to better position for earnings. Use option strategies and charting tools to help navigate these vexing volatility events.
Check out short-term options pricing to gain a sense of how the underlying stock could move around an earnings release. You can track straddles or use the TD
Traders often think of options in small denominations because that’s how the bid/ask quotes appear. But beginning investors in particular must remember to use a 100x multiplier to help determine correct position sizes.
Picking months and strikes are big decisions for options traders. Do probabilities matter? We think so.
thinkorswim platform’s ® Today’s Options Statistics divvies up the market by call and put volume, delta values, historical volatility, and more.
The first step to overcoming any fear is understanding what you're dealing with. With short-naked puts, that means understanding the strategy and the risks.
Trading earnings announcements can be a fool's game. When volatility is high, trends can break after a company announces. Consider a few volatility tricks.
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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
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