Guide to Investing Options [Options Clearing Corporation]
1. Basics: When you purchase an option –> Long position Write an option –> Short position 2. Set your Strategy –...
Volatility Skew Information
Volatility Skew – situation where individual options on a particular entity have different implied volatilities that form a pattern – the pattern can be a...
About our Volatility Data – Implied Volatility and Historical Volatility
Estimate of the volatility of the underlying stock Low implied volatility –> Option considered cheap Don’t blindly buy or sell based on Implied Volatility. There...
Covered Call Writing: Why Cash- Base Put Selling is Superior
Naked Put Selling = Covered call writing (but naked is better strategy due to lower cost) Covered call requires 2 commissions (stock and written call)....
Put – Call Ratios
The trading volume of put options to call options indicates the Investor Sentiment How to interpret put-call ratio: – higher ratio: time to sell but...
Which Option To Buy: Deciding What Contract Is Best
(i) Day Trading – Uses the underlying instrument with the highest possible delta (trade the stock, NOT the option) (ii) Short term Trading (1 to...
Options Trading Glossary
Backspread Any spread in which in-the-money options are sold and a greater quantity of out-of-the-money options are bought. In a more general sense, it may...
Trading Strategies
1. Stock- Oriented Strategy – Covered Straddle – Normally price rise, sell shares to realise profit. Price drop, buy more shares. – BUT Alternative to...
“Best” Option Strategy for each Implied Volatility rank
Implied Volatility percentile Strategy Net Buyer 0 to 50 Debit Spread Calendar Spread Ratio Spread Diagonals Net Seller 50 to 70 Credit Spread Iron Condor...
Option Expiration
1. Expiration for Index and Equity Options is the Saturday immediately following the 3rd Friday of the expiration month (except when Friday is a holiday,...
