Options Trading Tutorial

Spartan Oil Corp. Announces 2011 Capital Budget and Public Guidance
CALGARY, ALBERTA– – Spartan Oil Corp. , is pleased to announce its capital and operating budget and associated public guidance for 2011.
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Pacific Rim Mining Finalizes Hog Ranch Property Joint Venture Acquisition
VANCOUVER, BRITISH COLUMBIA– – Pacific Rim Mining Corp. , through its US subsidiary Pacific Rim Exploration Ltd. , has signed a final Definitive Agreement with ICN Resources Ltd. and Washoe Gold Inc. providing the Company with the option to acquire a 65% joint venture interest in the Hog Ranch Property, Nevada .
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Bulls and Bears Place Last-Minute Bets on Cameco Corporation Ahead of Expiration
Options players on Monday set their sights on Cameco Corporation (CCJ – 25.32), with volume ramping up to more than double the daily average…( Read More )
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by iphilipp

Question by pps p: Question about Implied volatility of option contract?
Hello Everybody;

I Know, Implied volatility always rises before scheduled events “but not always true”.

I Understand, Implied Volatility rises when there is Uncertainity and vice versa.

Let’s take , “but not always true ” in the above sentence and ask a new question.

1.Lets say comapny XYZ has 2 months left to annouce the earnings report. The company annouces that it is going to show better or worst result in the report due to release in 2 month time.In that case, Does Implied Volatility of the option rises or falls? why?

2.Lets say comapny XYZ has 2 months left to annouce the earnings report.Analysts are expecting 5% increase in profit in the report due to release in 2 month of time.In that case, Does Implied Volatility of option rises or falls?why?

3.Can you please explain some examples or Instances where Implied volatility is not going to raise before the scheduled events?

4.How can someone make educated Guess that Implied volatility of option is going to raise or fall before any scheduled events?

Please explain to me in simple and easy way to understand.

Thank You.

Best answer:

Answer by euroman71
I suggest you go to optionxpress website and read about options. Options is an extremely risky investment strategy, I’ve tried it after taking a 3 day course which painted a totally opposite picture for options. When you buy stock in a company and it goes down say by 5% you can hold on to it until it recovers but when you buy option contract, then the time factor also plays a huge part in options and you don’t have a luxury of waiting.

Don’t do options if you don’t understand consequences.

Give your answer to this question below!

Question by cbbeangirl: What’s the implied Volatility?
The Dow Jones Industrial Average on January 12, 2007, was
12,556 and the price of the March 126 call was $ 2.25. Use DerivaGem software to
calculate implied volatility of this option. Assume the risk-free rate was 5.3% and
the dividend yield was 3%. The option expires on March 20, 2007. Estimate the
price of a March 126 put. What is the volatility implied by the price you estimate
for this option? (Note that options are on the Down Jones index divided by 100)

Best answer:

Answer by Paul Smeed
Do your own homework!!

Know better? Leave your own answer in the comments!

Question by ddt77ta: short selling implied volatility..strangles or straddles? ATM or OTM?
Hi there,
I bet on drops of near term implied volatility, so far so good according to the simulations.
Quick question:
Assume you know exactly on which date the drop of IV shall occur, would you short sell a straddle ATM or short sell a strangle OTM? In case of strangle which rule of thumb would you use to pick up the right strikes?
thx a lot
Daniel

Best answer:

Answer by dos_fossil
If you want to bet on a IV drop, I would use a calendar. This would be selling the high volatility of the near month and buying the lower volatility of the next month for a net debit. Picking a strike price, use the past 4 or 5 earnings price movements to estimate the one you are playing. Also take into account the current standard deviation and the to the money strangle. Now that you have all of these numbers running around in your head, use your intuition. This strategy is best put on 4 to 6 weeks before earnings (when the from month volatility is higher than the next month) and taken off a week or two before earnings. This way there is no surprise when you pick the wrong strike price, the stock does not move as much as you thought or gaped past your strikes. And now, game over, there is no time to adjust. I know this is not what you asked for but to straddle trades are high risk. It only takes 3 or 4 bad trades to be washed out of the market. At the CBOE ask for their pdf on Hockey Sticks.

Good Luck,

Give your answer to this question below!

Question by Mich Fury: to short options Historical volatility vs Implied volatility?

Best answer:

Answer by Trader Anup
Use relative comparision between implied volatility (IV) and Historical Volatility as decision making criteria. Over a period, IV returns to HV levels. so when IV is higher then Historical Volatility, it is time to short options and benefit by collecting higher premium. Just make sure that it is not marginally higher, but significantly. You can use standard deviation of difference between HV and IV to get idea about normal range (ie.1 standard Deviation zone) and abnormal zone (>1 or >2 standard deviation zones to take decision).

What do you think? Answer below!

JPM could be facing a familiar trendline foe on the charts
Financial bigwig JPMorgan Chase & Co. (JPM – 41.05) could announce a management shake-up soon, sources recently told the Wall Street Journal…( Read More )
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CME, CBOE launch volatility indexes for corn, soy
CME Group Inc. CME and CBOE Holdings Inc. CBOE will launch volatility indexes for corn and soybean markets following sharp price swings in the commodities in recent years. Each index, or VIX, will measure the market’s outlook for big swings for the commodity as it trades on CME’s Chicago Board of Trade.
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Investors see risk in some commodities
Weak economic news in key developed economies pushed down commodity prices in early May.
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Question by RoastGoose: Picking options: Implied Volatility and greeks…….?
Hi

Let’s say you’ve decided on an options strategy,
for example Long Straddle: Buy one call option and buy one put option at the same strike price.

Assuming you have multiple option pairs that meet the criteria, how do you pick which one to buy?

Is a lower implied volatility the only thing to look out for?
How would the greeks differentiate one pair from another in this case?

Thanks

Best answer:

Answer by Damocles
Low volatility only ensures that you end in the middle. High volatility will allow you to cash the winner and let the loser go.

I do not hedge directly. I pursue high volatility and spread my action across several industries. When any one of my options reaches target, I get out with a large enough profit to cover the losses on the others.

Add your own answer in the comments!

New Gold Closes Acquisition of Richfield
New Gold Inc. and Richfield Ventures Corp. today announce that New Gold has closed the acquisition of Richfield. In completing the acquisition, New Gold has issued approximately 49 million New Gold shares to former Richfield shareholders.
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SM Energy Provides Divestiture Update and Announces Amended Credit Facility
SM Energy Company announces it has commenced negotiations concerning the divestiture and development of a material portion of its Eagle Ford shale position. The Company received multiple bids during its marketing process and is currently negotiating a transaction or combination of transactions.
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IBERIABANK Corporation Announces the Completion of Acquisitions of OMNI BANCSHARES, Inc. and Cameron Bancshares, Inc.
IBERIABANK Corporation , holding company of the 124-year-old IBERIABANK announced the completion of the acquisitions of OMNI BANCSHARES, Inc. , the holding company of Metairie, Louisiana-based OMNI BANK and Cameron Bancshares, Inc. , the holding company of Lake Charles, Louisiana-based Cameron State Bank. Â The acquisitions, including mergers of the subsidiary banks with and into IBERIABANK …
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Spectral Analysis is an even more powerful trading tool now with the ability to change the implied volatility forecast for each leg of your trade! Create multi-leg spreads with spreadMAKER then manually edit the implied volatility prediction for each leg of the spread to visualize how your option strategy experiences profits and losses between the current day and option expiration for any path the underlying might take. With Spectral Analysis you are using the power of pictures to save time and get more immediate insight into how to best manage your trades.
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by iphilipp

After undertaking a lot study into trading involving both the stock market along with into CFD Trading, we have put together some fundamental information associated with why many skilled traders experience success and continue to trade whilst others have not or do not profit as steadily as many others. This information will talk about several of the best reasons why these people trade contracts for difference, that we have found.

Reason one: If done efficiently you will not have to pay any overnight interest service fees. You can do this by simply making sure that your CFDs position is closed before the end of the day (going by the trading day, not only a typical day). Of course there are some fees that may be incurred, but by closing in this way you can limit the interest fees quite a lot.

Reason two: CFD trading at the moment is a very high volatility market. It indicates that if you comprehend what you are currently doing, you can use this erratic market and mix it with short term moves, you will be able to produce a large profit margin.

Reason three: Contracts for difference provide the trader a vast quantity of leverage as opposed to standard trading. This means that the trader can certainly leverage their position and actually increase it by a large amount. An illustration would be if you had a 00 position and it earned a 10% return, normally that would imply you have made 0. However, use leverage and then for this instance use it at 10 times the position and as opposed to 0 you have gained 00 on the very same trade. After you become good in knowing how to work with the leverage it is possible to try your trading skills through the use of among the numerous providers whom permit as much as 20 times the funds in your account.

Reason four: CFD traders experience a dramatically reduced broker fee, as brokers involved with cfds normally merely charge from 1-2% of the trade size, with a minimum of per trade, which is certainly a lot cheaper than most other trading markets. These days there also many cfd trading brokers that actually have selected markets by which they do not charge any broker charge for.

There are lots of more reasons why the CFD trading market is now very popular, however, the above listed are only a tiny taste of why. Keep in mind, if you choose to begin trading in contracts for difference; make certain to completely understand everything and facts before you start.

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