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VEGA

Options: Why the Odds Are Stacked Against YouThe Hidden Challenges of Options Trading: Options trading may seem like an exciting way to profit from market movements, but beneath the surface lies a trading environment that is heavily biased against individual traders. Many retail investors jump into options trading unaware of the many disadvantages they face, making it more of a gamble than a calculated investment. In this post, we’ll explore the major challenges that make options trading so difficult for individual traders and why you need more than luck to succeed. 1. The Odds Are Biased: Complex Algorithms Unlevel the Playing Field The first thing to understand is that the playing field is not even. Professional traders and market makers use complex algorithms that evaluate a wide range of factors—volatility, market conditions, historical data, time decay, news and more—before they even think about entering a trade. These systems are designed to assess risks, manage exposure, and execute trades with a precision that most individual traders simply can’t match. For an individual trader, manually analyzing these factors or using basic tools available online is nearly impossible. By the time you’ve analyzed one factor, the market may have already shifted. The reality is that unless you have access to these advanced algorithmic systems, you're trading with a massive handicap. 2. Market Makers Hold the Upper Hand: Your Trades Are Their Game Market makers play a critical role in options trading by providing liquidity. However, they also hold an unbeatable advantage. They see both sides of the trade, control the bid-ask spreads, and use their position to ensure they’re on the winning side more often than not. For them, it’s not about making speculative bets; it’s about managing risk and profiting from the flow of orders they receive. When you trade options, you're often trading against these market makers, and their strategies are designed to maximize their advantage while minimizing their risk. This means your trades are, in essence, a bad gamble from the start. The house always wins, and in this case, the house is the market maker. 3. They Will Fool You Every Time: Bid-Ask Spreads and the Math You Don’t See One of the most overlooked challenges in options trading is understanding the bid-ask spread. This spread represents the difference between the price you can buy an option (ask) and the price you can sell it (bid). While this may seem straightforward, it’s an area where professionals easily outsmart retail traders. Advanced traders and market makers use complex mathematical models to manage and manipulate these spreads to their advantage. If you don’t have the mathematical skills to properly evaluate whether the spread is fair or skewed, you’re setting yourself up to overpay for options, leading to unnecessary losses. 4. Information and Tools: A Professional-Only Advantage Another critical challenge is the vast difference in information and tools available to retail traders versus professionals. Institutional traders have access to data streams, proprietary tools, and execution platforms that the average trader can only dream of. They can monitor market sentiment, analyze volatility in real-time, and execute trades at lightning speed, often milliseconds faster than any retail investor. These tools give professionals an enormous edge in identifying trends, hedging positions, and managing risk. Without them, individual traders are flying blind, trying to compete in an arena where the best information is reserved for the pros. 5. Volatility and Time Decay: The Ultimate Account Killers Two of the most critical factors in options trading are volatility and time decay (known as theta). These are the silent killers of options accounts, and pros use them to their advantage. Volatility: When volatility increases, option prices go up, which might sound great. However, volatility is unpredictable, and when it swings in the wrong direction, it can destroy your position’s value almost overnight. Professionals have sophisticated strategies to manage and hedge against volatility; most individual traders don’t. Time Decay: Time is constantly working against you in options trading. Every day that passes, the value of an option slowly erodes, and as expiration approaches, this decay accelerates. For most retail traders, this is a ticking time bomb. Pros, on the other hand, know how to structure trades to profit from time decay, leaving amateurs at a disadvantage. Conclusion: Trading Options Is No Easy Game The challenges of options trading are real and significant. Between the advanced algorithms, the market makers’ advantages, the mathematical complexities of bid-ask spreads, and the tools and information reserved for professionals, the odds are stacked against you. Add to that the constant threat of volatility and time decay, and it’s clear that options trading is a difficult and often losing game for individual traders. If you’re thinking about jumping into options trading, it’s crucial to understand the risks involved and recognize that the deck is stacked. To succeed, you need more than just a basic understanding—you need tools, strategy, and a deep awareness of how the pros operate. Without that, you're gambling, not trading.
NASDAQ:NVDAEducation
by CF_444
Options Blueprint Series [Intermediate]: Vega-Neutral Gold Play1. Introduction Gold is currently in an uptrend, presenting a potentially favorable environment for bullish traders. However, with implied volatility (IV) sitting around its mean, there’s uncertainty about whether IV will rise or fall in the near future. In such a scenario, traders may want to neutralize their vega exposure to avoid being negatively affected by changes in volatility. This article focuses on setting up a Call Ratio Spread, a bullish option strategy that provides positive delta while allowing for further adjustments that could keep vega neutral. This allows traders to capitalize on Gold’s potential uptrend while minimizing risk from changes in implied volatility. 2. Current Market Context The Gold futures market shows strong levels of support, which reinforces the bullish outlook. On the continuous Gold futures chart above GC1!, we observe key support levels at 2646.2 and 2627.2-2572.5. These levels could act as price floors, helping the uptrend continue if tested. Similarly, when examining the contract-specific below chart for GCQ2025, we identify supports at 2725.4 and 2729.5-2705.5. These levels provide solid ground for bullish trades on this specific contract, giving traders additional confidence in entering long positions. With implied volatility near its average (see the chart below), the market’s future volatility direction is unclear. Traders using options may choose adapt to this environment, ensuring that changes in volatility do not work against them. 3. Options Strategy: Call Ratio Spread To take advantage of Gold’s uptrend while neutralizing the risk from changes in volatility, we could employ a Call Ratio Spread. This strategy offers a bullish stance while maintaining vega neutrality, protecting the trader from swings in implied volatility. Setup: Buy 1x 2600 Call at 256.15 Sell 2x 3500 Calls at 23.32 Expiration: July 28, 2025 This configuration generates positive delta, meaning the strategy will benefit from upward price movement. At the same time, by selling two calls at a higher strike, we offset the vega exposure, ensuring that changes in volatility won’t dramatically affect the position. The strike prices and expiration selected help create a risk profile that works well in a bullish market. The maximum gain potential occurs if Gold continues to rise but stays below the higher 3500 strike, while the vega neutrality minimizes any volatility risks as the trade begins. Notice the breakeven point for this strategy is 2809.5, meaning the trade becomes profitable if Gold exceeds this level by expiration. 4. Why Use Micros? Traders looking for a more flexible approach can consider using Micro Gold Futures (symbol: MGC) instead of standard Gold futures contracts. Micro Gold Futures offer smaller contract sizes, which translate into lower margin requirements and a more precise way to control risk. This makes them an attractive alternative for traders with smaller accounts or those looking to scale into positions gradually. Additionally, Micro Gold Futures allow traders to fine-tune their exposure to Gold without the larger capital commitment required by standard contracts. For those implementing strategies like the Call Ratio Spread, Micros provide a cost-effective way to execute similar trades with a lower financial commitment. Contract Specs and Margin Requirements Gold Futures (symbol: GC) represent 100 troy ounces of gold, and their margin requirements can vary depending on market volatility and the broker. Typically, the initial margin requirement for a standard Gold futures contract is around $10,000 to $12,000, but this can fluctuate. For traders seeking more flexibility, Micro Gold Futures (symbol: MGC) offer a smaller contract size, representing 10 troy ounces of gold. The margin requirement for Micro Gold Futures is significantly lower, usually in the range of $1,000 to $1,200, making it a more accessible option for those with smaller accounts or those looking to fine-tune their exposure. 5. Risk Management As with any options trade, managing risk is essential. In the case of a Call Ratio Spread, the primary risk comes from the naked short calls at the 3500 strike price. If Gold rallies aggressively beyond 3500, the trader faces unlimited risk due to the uncovered nature of the short positions. To mitigate this risk, traders should consider using stop-loss orders or adjusting the trade if Gold's price approaches the 3500 level too quickly. Another way to eliminate the unlimited risk component to the upside would be to convert the Call Ratio Spread into a Call Butterfly by buying an additional call above the 3500 strike price, effectively capping the risk. This adjustment still allows for positive delta exposure while limiting potential losses if Gold moves sharply higher. Additionally, monitoring implied volatility is key. While the position starts with neutral vega exposure, this will change as the underlying asset price moves and time passes, especially as expiration approaches. The vega exposure can increase or decrease depending on these factors. If maintaining the vega-neutral characteristic is a priority, further adjustments—such as rolling options or modifying strike prices—could be made to keep the position aligned with the trader’s volatility outlook. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
COMEX:GC1!Education
by traddictiv
CLV/USDT 1D. Idea. Downtrend channel. Wedge. Channel.This CLV/USDT 1D. Similar to VEGA in meaning of coins, but not in the chart. Under meaning i understand that these both projects coming from coinlist. On this coin CLV we see a big big downtrend channel forming. In this downtrend channel also a wedge forming. Right now a big volume coming in token recently, but there were not movement yet. Main trend - downtrend. Secondary - channel. Locally - wedge. Earlier there were attempts to break this falling wedge, but as for now we got back into it. Right now there's quite big horizontal channel began to form - shown on the chart. As soon as we break out from this maintrend downtrend channel - a huge potential is opened to 0.11818$ zone. POTENTIAL(!) price movement is shown. This is just a possibility - can work out any way. Also the liquid accumulation zone is shown on the chart with blue rectangle. Main point is to break the main downtrend channel, the resistance of which is shown with red. After we manage that(breakout and retest) - a big potential is opened. very likely it will happen(pump) with the market tendency, not by itself.
Long
by TradingTsar
VEGA/USDT 1D. Another interesting coin rn. Accumulation. ChannelVega/usdt 1d. Secondary trend. In the secondary trend horizontal channel is formed. In this channel local uptrend channel was formed which recently broke down. Before the break down of the channel the falling wedge formed. The price dropped to the support of the secondary trend channel. Notice that the price hasn't dumped with the market recently. We've dropped to the dec. 22 minimums and rn we're holding this level(0.7$). Check out that the volume is also being accumulated in the coin as for now. IF we break the current local downtrend - then we'll see the retest of the broken uptrend channel(77%) - shown on chart. Next target will be about 121% which is the middle of the horizontal channel. Check out that the market is red right now so it's reasonable to take local targets ain't be that greedy. Though the higher targets are shown on the chart. I'm shown the real one as for me. Also wanna notice that this pattern - falling wedge breaking down and then accumulating - is quite an often recently pattern on different ranges which often results into the pump. Example which come into my head is DODO recently. Though the range there is bigger. Also we're in about 0.666$ zone.
VLong
by TradingTsar
⚖️OPTIONS TRADING: What are the Greeks?The Greeks are a set of mathematical measures used in options trading to assess and quantify various factors that influence the price and behavior of options. 📌 VEGA : Vega is a measure of how much an option's premium will change in response to a 1% change in implied volatility. Implied volatility represents the market's expectation of the underlying security's future movement. When implied volatility is high, options tend to be more expensive, and when it is low, options are cheaper. Vega is particularly influential for options with longer expiration dates, as volatility has a greater impact on their prices. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Essentially, Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌GAMMA Gamma, represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For instance, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌THETA Theta represents the theoretical daily decay of an option's premium, assuming all other factors remain constant. As time passes, options gradually lose value, and this loss is known as time value decay. The decay of time value is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially those near-the-money, tend to have higher Theta because there is greater urgency for the underlying asset to move in a favorable direction before expiration. Theta is negative for long (purchased) positions and positive for short (sold) positions, regardless of whether the option is a call or a put. 📌RHO Rho measures an option's sensitivity to changes in the risk-free interest rate and is expressed as the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌DELTA Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, where 0 indicates minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Editors' picks
Education
by QuantVue
9
Options Trading / Gaining the Edge & VIX Curve Implications Options Leverage has become increasingly popular over the past decade. In the past 30 months, their popularity has risen significantly relative to the Underlying Instrument. Increasingly so, Options tend to move Prices through the effects of Leverage. This is why we see Stocks Split, it vastly reduces the Price of Entry and increases the Potential for increased participation. As in all Markets, Liquidity plays the most important Function. ________________________________________________________________________________ The Traders Edge is best capitalized through an understanding of the Derivatives/Options Greeks as well as VIX timing (previously discussed and linked below). I will thoroughly explain the relationships and provide direct correlations using Price in each example. Simplicity will become self-evident after All the Variables are explained. Directional Risk Management is the Traders Edge. It provides the Risk/Reward parameters in Options Trading will make you a far better Options Trader. ________________________________________________________________________________ Options are a 1st Tier Derivative, ie. - their value is "derived" from an underlying asset. How this value is derived depends upon a number of factors: 1. The 5 Greeks and their functions - Delta, Gamma, Theta, Vega & Rho. With any Derivative - Dependent and Independent Variables define the Function. Greek Dependent Variable Independent Variable Delta Option price Value of Underlying Asset Gamma Delta Value of Underlying Asset Vega Option Price Volatility Theta Option Price Time to Maturity Rho Option Price Sensitivity to Risk-Free Rates Let's put this into context with simple and concise examples of each. ________________________________________________________________________________ Delta - How much the Options Price will increase or decrease with a $1 move in the Price of the underlying Instrument. By Example: Underlying Price of Instrument = $100 Options Premium = $2 Delta = $0.60 For instance - were the Price to move from $100 to $101 the Price of the Option would increase by 60 Cents to $2.60. Were the Price to decline from $100 to $99 in the underlying instrument, the Price of the Option would decline to $1.40 ($2.00 - $0.60). It is extremely important to understand Implied Delta is to occur at any point in time prior to or upon Expiration. Think of Delta as the Probability of your Options Potential, as well, it is actually the Number of Shares relative to the Options 100 Share implied leverage. An out-of-the-money Call Option with a 0.25 Delta has an estimated 25% probability of being in the money at expiration. A deep-in-the-money call option with a 0.90 Delta has an estimated 90% probability of being in the money at expiration. A Delta of 1 cannot occur as it implies Par with the underlying instrument and provides Zero incentive/profit Potential. This is important as we can observe it would be far more intelligent to purchase the underlying outright. For example, with a Delta of 1, for every $ move higher in the underlying, the option price would rise by $100. As you can see there is no incentive to simply not purchase the underlying instrument, it becomes a zero-sum game. Think of Delta in its simplest form with respect to Leverage. Delta in my example above is $0.60 - you are leveraging 60 Shares as opposed to 100 @ a theoretical Delta of 1. Delta's implied theoretical ranges: Calls - 0 to 1 Puts - 0 to (-1) Actual Range @ the Money 0.50 Delta - therefore a Trader is leveraging 50 shares. Why? Because a Trader does not technically own the shares. Consider it the Options Writers Profit Margin or Vig. The further in the Money on an options chain, the higher the Probability your Option will have less Risk. Of course, there is a premium to Risk/Reward as we move lower and away from the underlying Instrument or Share Price. ________________________________________________________________________________ Gamma - How much Delta change with a $1 move in the underlying Price. Delta and Gamma are both affected by Price movements up or down by $1 increments. Continuing our Example above: Underlying Price of Instrument = $100 Options Premium = $2 Delta = $0.60 Gamma = 0.012 For instance - were the Price to move from $100 to $101 the Price of the Option would increase by 60 Cents to $2.60. The Delta will change as it will include Gamma after the $1 Price increase: Delta 0.60 + 0.012 or - 0.612, the New Delta or $2.612. As the Option price moves towards In the Money, once again - Gamma will increase. It is important to lock down the context, these are Price relationships - Delta and Gamma. ________________________________________________________________________________ Theta - Options Prices decrease as Time passes moving to the Expiration Date aka "Time Decay" There are 2 distinct variables to decay. 1. Intrinsic Value: Simply put a Call option will have Intrinsic Value when the underlying Asset is above the Strike price of the Option. By Example: Underlying Price of Instrument = $100 Option Strike Price = $90 Intrinsic Value of Call Option = $10 ($100 - $90) Intrinsic Values can only range from Zero to a Positive number. For Put Options, the Value is the opposite, or when the underlying Aesst is below the Strike Price of the Option. Underlying Price of Instrument = $100 Option Strike Price = $110 Intrinsic Value of Call Option = $10 ($110 - $100) Intrinsic Value is Directly related to Price and only changes when the underlying Price changes. Time has no impact on an Options Intrinsic Value given there is no change in the price of the Underlying Asset. 2. Extrinsic Value: aka "Time Value" or Options with more time until expiration will have more Extrinsic Value than Options with less time until Expiration for the same underlying Asset for the same Expiration Cycle. ie. OPEX Date. Why? Over time Price ranges have the potential to expand and contract. Expansion leads to Contraction and vice versa. LEAP Options - 365 or more Days to Expiration have immense Extrinsic Value due to the component of time. It is important to note Theta begins its larger declines within 30 to 45 Days of Expiration. Theta goes steeply negative within this timeframe with a very High Probability. "Time" truly is Money - Extrinsically. Less Time, less Extrinsic Value, less Money. Options lose Time Value (Extrinsic) - Theta is expressed as a Negative Number. By Example: Underlying Price of Instrument = $100 Theta = $0.50 Time to Expiration = 10 Days Option Strike Price = $90 ($10 Intrinsic Value) Theta (decay) $0.50 X Time (duration) 10 Days = $5.00 of Extrinsic loss over Time to Expiration (Theta). Projected Theta Burn (decay) implies the Price of the Option will be $95. * This assumes there is No Change in Implied Volatility (More on this later). It is important to note when your Portfolio may show a steady change in Portfolio Theta, this is should not be assumed to be a linear function as Delta or Change is the only Constant. Markets move Higher and Lower with increasing Volatility. Changes can and are significant. ________________________________________________________________________________ Vega - Changes in an Options Value with respect to a 1% Change in Volatility or the Implied Volatility (aka the Widow Maker). Why the Widow Maker? If (IV) Implied Volatility drops significantly while the Underlying Asset's Price remains constant. This is an extreme example, but one that has become increasingly more common since September of 2021. Implied Volatility is the expected change to Price in the Underlying Asset's can change over time. Consider it the Price Range. It is important to remember an Options Price must change for Implied Volatility to change. Simply Put - a change in demand for an Option over time will determine its Implied Volatility. Supply becomes a Factor as Risk (implied volatility changes) - you would not want to assume the Risk of selling Naked Puts in a downtrend. Supply would decrease and Premiums would rise. The overall level of confidence and Fear would dictate demands while Supply would Price Risk. Conversely - and this is the Key, any option with a Higher Extrinsic Value will have higher Implied Volatility. By Example: Underlying Asset 1 Price = $110 Call = $100 IV = .69 Underlying Asset 2 Price = $105 Call = $100 IV = .47 A favorite time for the IV Crush is into Earnings of the Underlying as Volatility drops significantly aka - Buy the Rumor, Sell the News. As well, the timing of VIX Roll to Settle play a very large Role in Vega, as does the term Structure of the VIX Curve. Timing and Positioning in Time are the leys to the proverbial Kingdom in Options Trading. An Options Price changes by its Vega with a corresponding move in the Underlying Price of the Assets, Implied Volatility will rise by 1% By Example: Underlying Price of Instrument = $100 Option Strike Price = $90 Intrinsic Value = $10 Vega = 0.25 Implied Volatility = 60% Option Price $10 + Vega $0.25 = $10.25 Implied Volatily = 60% + 1% = 61% What has the highest exposure to Vega? Options At the Money and those with High Extrinsic Values. Remember, Volatility scales with Time, contraction to expansion. By Example: Implied Volatility is expressed on a 365 Day Basis. $100 Underlying Price Implied Volatility = .25 We can simply calculate the Range for the Underlying Price for the next 30 days: 1 Month Range = $100 x 0.25 x Square Root (30/365) Or $3.45 either side of $100 Or $103.45 to $96.65 or a $6.90 range. Finally - and of extreme importance: The shorter the Duration the more Extremes in Volatility affect Price. A large Decrease or Increase in an Underlying Assets price will have a far more pronounced effect on Options of shorter Duration. Melt ups and Melt Downs can be anticipated for Large moves in Leverage and isn't this what today's Options Trader is seeking.. the answer is yes, absolutely. The Setups require patience and an Edge over the Greeks. ________________________________________________________________________________ Rho - Measures the sensitivity of the option price relative to interest rates. A benchmark Interest Rate increases by 1% - Option Prices will change by Rho's Value as a percentage. Rho is presently within an arrangement unseen in prior Cycles, be it Business or Credit. The Treasury Curve, as well as the Effective Funds Rate, have direct Impacts upon Rho. Underlying's Alpha (Which has lower Volatility and higher Pricing Power) has less sensitivity to Rho - to a point, a point where Rates become too burdensome on the Economy. Underlying Beta (Which has Higher Volatility and Lower Pricing Power) has more sensitivity to Rho as forward Earnings are more steeply discounted to Low Beta or low to high Alpha. Given the tumultuous environment currently, Rho is being turned on its head as this Cycle is quite frankly unlike any in history. it Rhymes, yes, its repeat will be similar to Long Cycle Durations. This primarily due to the expansion of Credit and Default/Liquidity Risks present which are unseen in Human History. In prior expansions, rising yields had a profound effect on Bank's Balance Sheets. That was then, Rho would provide a lift to Delta increasing the Value of an option. The exact opposite is beginning to occur now and will likely stay in trend for some time. The math is exactly the same as above, this is where you, dear trader get to exercise your skills in what you have learned. Reminder: Delta and Gamma are Price Calculated in $1 Increments. Theta, Vega, and Rho are Percentage Calculated in 1% Increments. ________________________________________________________________________________ This week will be particularly challenging given the sheer size of this Expiration @ Quad Witching in Septenber 16th. With CPI due Wednesday and the FOMC the following week. It's going to be Volatile in the extreme. I hope this helped you in gaining an Edge with respect to trading Options. Trade Safely, with the Edge, and Good Luck this Week. - HK Please remember the VIX roll to Settle Strategies I discussed here -
TVC:VIX
by HK_L61
5
F ATH Break Weekly Options PlayDescription F has chopped around in this congestion pattern, a Rectangle, for 31 days following it's ATH run-up after the break on 28OCT. The Rectangle carries the same price implications as the Symmetrical Triangle, representing an equal balance between buyers and sellers, until one side eventually wins out and pushes the price beyond the upper or lower boundary indicating a shift in supply & demand. This particular rectangle is confined in a very tight range, slightly broadening and displays descending volume throughout (good indication of proper congestion pattern). Although the broadening is characteristic of the current market environment, this weakens the general technical strength of the pattern. Using Long Calls to maintain a positive vega. Long Call Levels on Chart SL < 20.5 PT : No price target set for the ATH , looking for a sharp move. The entry is a daily close over 20.5 . *Stops based off underlying stock price, not mark to market loss The Trade BUY 12/31 21C R/R & Breakevens vary on fill. Manage Risk Only invest what you are willing to lose
NYSE:FLong
by BarnardR
2
Implied volatility of optionsHello traders, Volatility is a measure of how quickly (the speed) the stock (but can be any security) moves up or down in price. Statistically, it is usually calculated as the standard deviation of stock prices over some time, usually annualized. This statistical measure is expressed as a percent. A stock that has a 90% volatility is more volatile than a stock with 20% volatility. Since implied volatility is a projection, it may deviate from actual future volatility. This is the only variable that is truly unknown (“implied”), it can be substantially out of line with what one might reasonably expect should happen, because of that, traders can use their analysis to exploit it to their advantage. If implied volatility is relatively high, options will be more “expensive”. On the other hand, if implied volatility is relatively low, options will be more “cheap”. The terms “expensive” and “cheap” are not correct, because it is a relative term and the price of today that looks “expensive” can tomorrow be more expensive. We can see this example on the chart. Two stocks that are relatively close in price. ZM implied volatility for the option presented is 77.4% NVDA implied volatility for the option presented is 51.2% ZM option price – $63.2 , NVDA option price - $43.4 Traders need to check the implied volatility of the stock to itself and other stocks, depending of course on the strategies they want to use. The vega Vega is the amount by which the option price changes when the volatility changes. Volatile stocks have more “expensive” options, meaning the price of the option will raise if the volatility will increase and will fall if the volatility will decrease. The vega is an attempt to quantify how much the option price will increase or decrease as the volatility moves, all other factors being equal. Vega is expressed as a positive number. (when buying options) For example, if the stock XYZ is at 100, and the 110 Call is selling for 12. The vega of the option could be 1.5, and the current volatility of XYZ is 60%. If the volatility increases by 1% to 61%, then the vega indicates that the option will increase in value by 1.5, to 13.5. If the volatility decreased by 1% to 59%, then the call would have decreased to 10.5. Vega is related to time. The more time the option has remains, the higher the vega is. Vega is greatest for At the money options and approaches zero as the option is deeply In the money. Since a deep In the money option will not be affected much by a change in volatility, it will be most affected by the stock price. Also, for at-the-money options, longer-term options have a higher vega than short-term options. Vega does not directly correlate with other “greeks” like delta or gamma. Chart explanation: Lines: Blue 3 points, light green 2 points, dark green 1 point, yellow break-even, red -0.95 points (95% loss). Strong colored lines – The option inputs at Friday close Weaker colored lines – Increasing only the implied volatility by 30% The meaning of this is to show what will happen if after we entered the trade the volatility will change. (Increase in this case) ZM – Option price -> 63.2 , stock price -> 511.52 , strike price -> 510 ,intrest -> 0 ,days to expiration -> 56 , implied volatility -> 77.4% ,23/10/2020 NVDA – Option price -> 43.4 , stock price -> 543.61 , strike price -> 540 ,intrest -> 0 ,days to expiration -> 56 , implied volatility -> 48.5% ,23/10/2020 I want to note, that the absolute increase is 30%, but the relative increase is different, meaning the 30% increase has more effect on NVDA, because it has a lower IV, 48.5% to 78.5% the increase here is 61%, ZM higher IV 77.4% to 107.7% the increase here is 38%. This means that you will profit much faster in NVDA if the IV will go up 30%. In the next educational post, I will write about option strategies, specifically about Strangle VS Iron Condor.
Editors' picks
NASDAQ:NVDAEducation
by ZoharCho
13
VIX and stock market crashes I want to discuss why I use the trend in the VIX index as an indicator for downside risk. When the VIX is trending higher, I interpret that as increasing downside risk for stocks. My reasoning is as follows. I use the VIX Index as an indicator for real put demand. I say real demand, because traders buying and selling intraday is not what I’m looking for. If VIX is trending higher, it signals to me that larger risk-taking market participants are hedging the downside. When long puts, you’re also long volatility (demand for puts = long volatility demand). When those market participants buy put options, market makers (not risk takers) selling those puts needs to hedge. They do so by delta hedging, which is, in short, shorting the underlying security. When volatility increase, the delta of an OTM option rise. This is logic: an OTM option is more likely to go in-the-money (ITM) when volatility is higher. This is why you sometimes will see sharp sell-offs and market crashes: as the market starts to fall, market makers have to short more of the underlying to stay market neutral. This is causing a self-reinforcing cycle. So, when I watch the VIX intraday, I look out for the VIX trending higher. If so, the stock market is vulnerable. If the VIX is trending down, as on Friday, I’m not anticipating a sharp sell-off into close.
TVC:VIX
by eirikb007
2
SPX Future Projection Analysis *Future spike detected*TVC:SPX What's happening on the May 1, 2020? Checking the United States Economic calendar. This is what I found that could be the cause of the increase volatility on that day: 1) Core Price PCE Index: Forecast is 1.7%, Previous was 1.8%...May drop further than anticipated. 2) Employment Cost Index: Forecast is 0.7%, Previous was 0.7%..."The Employment Cost Index measures the change in the price businesses and the government pay for civilian labor. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD. " ...Will this be 0.8%+? I think so. 3) PCE Price Index..."The PCE price index, also referred to as the PCE deflator, is a United States-wide indicator of the average increase in prices for all domestic personal consumption. The impact on the currency may go both ways, a rise in CPI may lead to a rise in interest rates and a rise in local currency, on the other hand, during recession, a rise in CPI may lead to a deepened recession and therefore a fall in local currency. 4) Personal Spending (Month to Month) Forecast is -6.5%, Previous was 0.2%...Maybe reading will show less than negative forecast. 5) Chicago PMI While these reading can flip the forecast; volatility will increase. So, for all Option holders, check your Vega. If you don't know what Vega is, don't do options until you understand the Greeks.
TVC:SPXLong
by investinfamily
Diary | 2/19/2020 | AMZN ButterflyDescription: Initiated this neutral strategy prior to some major moves yesterday. Going back, I shouldn't have done this trade (i.e., credit was way too small for the amount of risk I was taking on). Justification: - Directional Play: No. This strategy adds balance to my vega numbers. - Technical: Short-term zone of congestion. - Fundamental: Earnings continue to improve; Fed really supportive; jobs data positive; ISM manufacturing higher; market participants equally split between bullish and bearish ; virus data (if correct) shows the growth in virus cases slowing; trade going in a positive direction; and so on. If/Then: - Take profit? 20% of credit received. Strategy Details: - Short and Long leg: $2165, 2175, 2185 - Duration: Feb 21 Disclaimer: This is a page where I look to share knowledge and keep track of trades. If questions, concerns, or suggestions, feel free to comment. I think everyone can improve (myself especially), so if you see something wrong, speak up.
NASDAQ:AMZN
by Physik
Diary | 2/19/2020 | SPY ButterflyDescription: Initiated this neutral strategy prior to some major moves yesterday. Did I know that was going to happen? No, but it definitely got me out of the trade faster. Justification: - Directional Play: No. This strategy adds balance to my vega numbers. - Technical: Short-term zone of congestion. - Fundamental: Earnings continue to improve; Fed really supportive; jobs data positive; ISM manufacturing higher; market participants equally split between bullish and bearish ; virus data (if correct) shows the growth in virus cases slowing; trade going in a positive direction; and so on. If/Then: - Take profit? 20% of credit received. Strategy Details: - Short and Long leg: 334/339/344 - Duration: Feb 24 Disclaimer: This is a page where I look to share knowledge and keep track of trades. If questions, concerns, or suggestions, feel free to comment. I think everyone can improve (myself especially), so if you see something wrong, speak up.
AMEX:SPY
by Physik
Diary | 2/19/2020 | MSFT ButterflyDescription: Initiated this neutral strategy prior to some major moves yesterday. Did I know that was going to happen? No, but it definitely got me out of the trade faster. Justification: - Directional Play: No. This strategy adds balance to my vega numbers. - Technical: Short-term zone of congestion. - Fundamental: Earnings continue to improve; Fed really supportive; jobs data positive; ISM manufacturing higher; market participants equally split between bullish and bearish; virus data (if correct) shows the growth in virus cases slowing; trade going in a positive direction; and so on. If/Then: - Take profit? 20% of credit received. Strategy Details: - Short and Long leg: 182.5/187.5/192.5 - Duration: Feb 21 Disclaimer: This is a page where I look to share knowledge and keep track of trades. If questions, concerns, or suggestions, feel free to comment. I think everyone can improve (myself especially), so if you see something wrong, speak up.
NASDAQ:MSFT
by Physik
No frost in BrazilSeems like no frost in Brazil. It was a busy weeks last week and throughout the weekend with fears a frost could hit coffee areas. None has been confirmed and worst fears did not play out. Once all of this is digested I expect some downside opportunities as the market goes back into trading technicals rather than emotions. Quite oversold and we saw sell signals on RSI and Stochastik a while ago. Also, the 5 hour chart will provide with a sell signal, which has been a superb indicator of short term price action (5-10 days). I am short via 1x2 calendar put spreads, long the 135s in Q and short the 125s in U and various other like this. As we move lower, option vega will come in and provide some nice profits. Also, selling the Sep (U16) contract provides with some good premium as this is considered the frost month. Looking at futures spreads, they have been weak the past two trading sessions and also foreshadow price action. Support at 134, then nothing until 125
KShort
by mjhillpp
5