Advanced | Modrika

Options Trading

modrika — Tue, 22 Mar 2016 12:05:56 +0000

Options Trading was designed by Dan Keegan, a 38 year veteran of options trading. It is composed of seven separate modules. It begins with the market fundamentals and then options fundamentals. The next module shows how options can be used in conjunction with an equity or futures position. The third module deals with the most basic of options spreading techniques, vertical spreads. The fourth module once again deals with vertical spreads of a more complex manner. The fifth module deals with time value spreads where hedging takes place amongst different expiration cycles. The sixth module deals with the risk control tools that every options trader should have a thorough knowledge of, the “Greeks.” The seventh and final module deals with complex ratio spreads and the difference in pricing between out of the money put and call options. If a trader feels that they need help in only one area then they can choose the module that fits their needs. The overall course, however, is designed to take in all of the modules in an orderly manner. Each module has a quiz at the end of it. It is suggested that you only advance to the next module after you have scored at least 80% in the quiz that you have taken. If you purchase the entire seven modules together, not only do you receive a significant discount but you will also receive a 209 page text written by me. Every module has a power point and webinar produced by me. It also has many articles and webinars created by the top experts in the field of options trading.

The post Options Trading first appeared on Modrika.

Ratio Spreads, Skewness & Kurtosis

modrika — Sat, 19 Mar 2016 15:05:41 +0000

In this module you will progress to the most sophisticated level for an options trader. You will learn about ratio spreads, collars, skewness and kurtosis. This is the nuanced world that professional traders inhabit.

Ratio spreads indicate that the number of contracts bought and sold in a particular spread is uneven. The defined risk that exists in a straight vertical spread does not apply to ratio spreads where there are more options bought than sold. This has to do with the velocity with which a particular underlying moves in a certain direction. You’ll be taught how to take advantage of that relationship and how to profit from it. That also applies to spreads where there are more contracts bought than sold.

Collars refer to the strategy where an underlying such as a stock has its value collared by the purchase of a below market put along with the sale of an above market call. You’ll see how this strategy converts a stock shareholder into the owner of a vertical bull call spread or put spread. In the commodities world they are also referred to as “fences.”

Skewness might be the most important concept in the options trading world. I know that I look at two factors when I plan on trading a certain underlying, skewness and liquidity. Skewness reveals how fast it moves in one direction versus the other. Kurtosis refers to the pricing of out of the money options and their relationship to at the money options.

The post Ratio Spreads, Skewness & Kurtosis first appeared on Modrika.

The Greeks

modrika — Sat, 19 Mar 2016 14:59:05 +0000

When I was a market maker at the CBOE I would have an inventory of at least a thousand options in twelve different series in one stock. There is no way that I could figure out the risk in my position by remembering what spreads I established and what adjustments that I made. I needed a firm understanding of the options “Greeks” in order to properly monitor my risk. I don’t expect that many people will have inventories that approach those kind of numbers. Regardless of the size of your position the most important aspect of options trading is risk control.

When you trade futures or stock the variable that you have to worry about is price direction. If you are a buyer you want it to go up and if you are a seller you want it to go down. Options traders also need to look at the absolute movement in the underlying, the amount of time value that is embedded in the option premium as a result and the erosion of time value in an option premium. Remember, options are a wasting asset.

You need to know the delta, gamma, theta and vega for the options you are specifically trading and the other options that are listed as well. There’s an opportunity cost if you don’t know all of them. It’s not quite as daunting as it sounds. There is a big inter relationship amongst the Greeks and once you get used to using them they become much easier to understand.

The post The Greeks first appeared on Modrika.

14 Days Free Trial for Subscription

modrika — Fri, 13 Nov 2015 08:04:45 +0000