Because trends are composed of a series of price swings, momentum can play a key role in determining the strength of the trend. It is important to know when a trend may be slowing down, as it may be indicative of a reversal. How can a trader assess the strength of a trend? Using momentum, along with rate of change and momentum divergence, … [Read more...]
What Are Intrinsic and Extrinsic Option Values?
Intrinsic and extrinsic option values are two components of an option chain which can be very important to an options trader. Knowing the intrinsic and extrinsic option values can help you as an options trader choose a good option candidate with its’ corresponding strike price and expiration. This can be a key factor in laying a … [Read more...]
What does the SKEW Index Mean to Options Traders?
In February, 2011, CBOE introduced the S & P 500 SKEW Index, as another means for investors to gauge market volatility and the potential risk of a "black swan" type of event. The SKEW Index is an option-based indicator that measures the perceived tail risk of the distribution of S & P 500 returns in the next 30 days. "Tail risk" … [Read more...]
Weekly Options – Be Aware Of The Risks
Options trading becomes more and more popular every year. The options become more liquid and more traders use them for hedging, speculation, income etc. Weekly options (weeklys), introduced by CBOE in October 2005, are one-week options as opposed to traditional options that have a lifespan of months or years before expiration. There … [Read more...]
Forex 101: Some Basics on Understanding the Foreign Currency Market
Many investors consider the foreign exchange market (also referred to as Forex or FX) to be one of the most intriguing and exciting markets in the world. The foreign currency market is an extensive subject; and too vast to cover in one article. Today we will cover the basic elements of the Forex, and some important considerations for … [Read more...]
Inverse ETFs; Are They for You? Understanding the Plus’s and Minus’s
Exchange Traded Funds (ETFs) are funds that track indexes such as the S&P 500, Nasdaq 100, Dow Jones Industrial Average, Russell 2000, etc. When an investor buys shares of an ETF, they are actually buying shares of a portfolio that tracks the yield and return of the related index. By purchasing an ETF, investors get the … [Read more...]
Who thinks Covered Writes Should be Illegal?
Dan Sheridan posted an article yesterday "Why should Covered Writes be Illegal?" A covered write is more commonly known as a covered call. Dan has an example of XYZ stock (I love XYZ stock...) +100 XYZ stock @ 90.00 -1 Aug 95 Call @ 1.00 Dan made a few statements that I need to comment on: - Dan says that he sells in-the-money … [Read more...]
What is a Bull Call Ratio Backspread Option Strategy?
The ratio backspread is a strategy used by traders to create a position with a limited loss and varying degrees of profit. If the trade goes against you and the position is setup correctly, it can help guard against a large loss. This can be useful, especially when there is major news or a “black swan” event. The ratio backspread can … [Read more...]
Bid/Ask and “Spread” Prices … How They Can Affect Your Options Trading
Those new to options trading may not fully understand the different prices quoted on options contracts. Today we will discuss the basic prices which can appear in the option chain for an option: bid, ask, mark, and last. I will outline each price, as well as what the bid/ask spread means for options traders. Below is an example showing … [Read more...]
The Combination Trade
I've been bullish on the U.S. markets for some time but I primarily trade a market neutral strategy called the Road Trip Trade. Here's a sample of what a typical Road Trip Trade looks like: If I was correct with the bullish market direction opinion, I wanted to participate in the rally. The accounts I trade are in a Commodity … [Read more...]
