Diversification isn’t just about stocks, bonds, and cash. When hedging risk for an options portfolio, think price, time, and volatility.
With many options trading strategies to choose from, how do you find the right one? Consider a three-step process to help with your decision.
Options straddles and strangles are a way for advanced traders to get long or short exposure to volatility (vega), but the volatility needs to be weighted against time decay (theta). Here are the basics.
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.
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.
The value of an option tends to decay as expiration approaches. Learn about three options trading strategies that target time decay (“theta”).
Traders tend to equate high volatility with fear. But volatility can also mean possible trading opportunities. So, instead of avoiding high volatility, learn to use it in your options trading.
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.
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.
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.
Even your best trading plans can change because options greeks such as delta, theta, and vega are constantly changing. if you have a portfolio with many positions, managing trades can be difficult. These guidelines can help keep you on track.
As stock options get closer to their expiration date, options prices can change quickly. Understanding options gamma could help you manage your stock options positions better.
If the markets are crashing, do you close your positions or do you take advantage of opportunities? Whether you are a stock investor, volatility trader, or speculator, there may be a strategy worth pursuing.
Theta can indicate many things but you can only depend on it after you have closed your trade.
Delta contains information that matters most when you are looking for a profit. But there is more to delta.
Vega can show you how much the dollar value of an option changes for every one percentage point change in volatility. But traders often confuse vega with volatility. Knowing the right way to use vega can help you come up with an options trading strategy.
Learn how a long calendar spread can be effective in a low-volatility trading environment.
Useful thinkorswim tools you can use are the Heat Map, volatility calculation and Mobile Trader. Find out which stocks are moving, different ways to calculate volatility and share charts on Mobile Trader.
Calendars and butterfly strategies may look similar but they have their differences. Why would you choose one over the other?
Traders sometimes talk glowingly about thrilling options trading strategies without considering the risks. There are some alternative strategies such as short out-of-the-money verticals that you could consider to better manage your risks.
Maybe volatility is low and you believe a breakout is about to happen. But you don’t know which direction price will move. Or maybe you believe the markets are high and you don’t know when they might fall. What options strategies could you trade?
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.
Do you know how to measure mean reversions? It's a popular investment strategy used by market traders around the world. Find out how you can use it.
Options on futures are quite similar to their equity option cousins, but a few differences do exist.
Are you getting the most out of your iron condor stock trades? Double diagonals could help you do just that. Learn more about options trading.
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 gamma, which some traders consider the positive side of negative theta.
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.
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.
Looking for opportunities amid a low volatility trading environment? Learn about calendar spreads.
Part of our series on portfolio margin, the greeks—theoretical metrics describing how things like stock price, time, and volatility can impact option price.
The greeks option traders use are loved by many, but understood by few. Know the false “truths” about option greeks to better manage your trades.
Sometimes the options market can signal when it’s time to adjust a trade. But how long should options traders stick with an adjustment plan?
Learn how synthetic options strategies can help traders potentially lower transaction costs, improve price discovery, and more efficiently use capital.
Industry data shows options trading numbers are growing. But many stock traders remain hungry for options trading basics. Here’s how to get started.
Income-focused option trades succeed when the market doesn’t move that much. Learn how to recognize income opportunity.
Volatility’s tendency to level out after a spike can present strategy opportunities, especially selling strategies found with strangles and iron condors.
Expand option market learning to weekly double calendars. They can increase in profitability if implied volatility rises.
Basic options strategies can help investors protect portfolios against inevitable market volatility and market crashes.
Buying calls and puts is great when the stars align. For the spread trader, anything is possible. And the vertical spread is all where it begins.
Options greeks can help measure how much an option might gain or lose—and help you decide how much risk you’re willing to take.
Without stock and options volatility, there are no trading opportunities. So to revere it rather than fear it–you need just need to “get it.”
A guide to weeklys: Volume is swelling, and traders are using weekly options to speculate on very short-term moves, or simply as a hedge.
Before buying or selling call and put options, check the alternatives. The vertical spread is a simple solution to the problems short naked options pose.
Diversification approaches for active traders to hedge non-systematic risk across spreads, including directional risk and time and vol.
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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.
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