Options

Is Low Volume Signaling An End To The Bull Market?

One of the long used bearish points during this bull market has been volume is light.  The thinking is that low volume is a sign of a lack of participation. And that this will open the door for a big sell-off. The only problem with the low volume argument is we’ve been hearing it for years now. I remember back in September 2009 first hearing this while doing some bull/bear

Options Trading In Motion: The 1 by 2 Vertical Options Spread

Looks like a bit of a bounce this morning. I wouldn’t make too much of that, though, as Tuesday is often a counter trend day. But, hey, market prognostication isn’t exactly my area of expertise. But, options education is. So, after looking at a 2 by 1 spread yesterday using puts, let’s look at a 1 by 2 vertical options spread using calls. Normally I do not like being net

Options Trading Education: The Year In Review

This year in the stock market has been all about The Great Rally of 2013. It’s been seemingly unstoppable with no meaningful corrections or downturns along the way. What this did to option premiums was crush them like a bug. That is normal in trending markets and especially so in rising markets as a relative lack of fear leads to underinsurance. The CBOE Volatility Index (VIX) has been in the low

Options Education: Collar That Stock

You can sell a call against a stock you own and you can own a protective put under your stock. Well, you can combine the two by owning an out of the money (OTM) put, owning the stock and selling an OTM call. This is commonly referred to as an options collar strategy. In fact, you are financing your OTM put by selling the OTM call. Yes, it limits your upside potential

Options Education: The Christmas Tree Options Strategy

Today I would like to discuss another variation of The Butterfly options strategy that is similar to the Broken Wing Butterfly, but not exactly so. It may seem complicated at first, but it really isn’t. And, because you are neither net long nor short options, the risk is easily definable. This variation is called The Christmas Tree options strategy. Let’s look at a call Christmas Tree. You are long one

Options Education: The Basics of Exercise and Assignment

Every now again I think it fitting and proper to review some of the basic elements in options working method. Today I am going to give a review on what happens when an in the money option turns into the underlying asset, long or short (i.e. bought or sold) through exercise and assignment. Fundamental options education! This happens in two ways, depending on the style of option. American style options

Options Strategies For A Broken Stock Trade

Sometimes bad things happen to good stocks. And when this happens, good stock trades can quickly become broken stock trades. Just like a rising tide lifts all boats, when the tide goes out, the boats go lower. Massive market sell-offs show no mercy, are not selective, and take no prisoners. What can you do when a stock you bought (and like) heads lower? You can: A) do nothing. You bought

Using a VIX Call Spread as a Downside Hedge

I would like to discuss today another way to hedge your equity portfolio against a major move lower, albeit perhaps indirectly. And we can do this by using options on the CBOE Options Volatility Index (VIX), namely a vertical VIX call spread. The VIX is an index which provides a measurement of the implied volatility in the US market over the next 30 days. Remember that there are two sorts

Options Education: The Short Strangle Options Strategy

I really don’t like being naked short options as a rule. The prospect of potentially unlimited risk would keep me up at night. But then, you, dear readers, are not me. I am a risk adverse and conservative options trader, but that doesn’t mean that you have to be. Anyway, I’m an options educator now and not an advisor and as such see it as my responsibility to talk about