Tag: delta neutral trading

Daily Video Update: Like an addict, the market needs another fix!

Posted on by The INO.com Team

Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Tuesday, the 17th of July.

Like an addict, the market needs another fix and the drug pusher of choice is, of course, Ben Bernanke and his QE pills. The question on trader's minds these days: is the market going to receive another QE3 fix soon? Or are the markets just going to get the shakes and move back to the downside? A QE3 pill is needed if this market is going to get high again, on the upside.

It's very debatable as to whether the Fed and Bernanke have any more pills to sell. If Bernanke is out of pills, then this market will have to go cold turkey. The market will have to survive on its own strength and weaknesses and not some drug induced quantitative easing.

As for MarketClub, we will let the markets and our Trade Triangles do the talking. Continue reading "Daily Video Update: Like an addict, the market needs another fix!" →

Option Trading – Calendar Spreads & Time Decay

Posted on by The INO.com Team

From David Riveria from Delta Neutral Trading comes a lesson on Option Trading...Calender Spreads and Time Decay. Learn more about David and his site Delta Neutral Trading.

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When traders speak of putting on calendar spreads, they normally refer to buying the further month options and selling the closer month option. While I can not argue with this, it is not best for all options.

I am going to be general in this article because prices change and I don’t want to cause confusion.

For out of the money options, you might want to consider doing the opposite. Buy the close month and sell the further month. This is because the theta is advantageous to you if you are buying the front month. The further the months are from each other, the more you have an advantage. Also, figure out the price per day of the option. Which option costs more and which is cheaper per day. You can find options that are equal distance away in strike from the futures but one option is 3 times cheaper per day than the other.

For the at the money options, the regular calendar spreads are the way to go. For strike prices that are far out of the money, the reverse calendar spread is better. One reason is the theta advantage. Another is the price per day.

So keep your eyes open for out of the money options and check their price per day and theta and compare them to different months. If you are looking at different months, make sure that the month you are thinking of selling, is the same amount of strike prices away or more from the underlying, as the one you sell. Meaning, if you buy an option that is 5 strikes away from the underlying, the one you sell, should be at least 5 strike prices away from the underlying. This is so if there is a big move, both options will be in the money at roughly the same time.

David Rivera has traded commodities and options for one of the largest cash trading firms in the world. He has written a course on futures options techniques.

You can find out more about this concept at: Delta Neutral Trading

Non-Directional Option Techniques

Posted on by The INO.com Team

Today I’d like to welcome Dave Rivera from DeltaNeutralTrading.com. Dave has been keeping me up to date on the latest options news and information. I can say that because of his emails and phone calls I’ve learned more about options trading then I ever thought I could. Enjoy his post below…and you’ll see what I mean

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Please only use these examples for educational purposes.

Paper trade them.

I like to look at options in comparison to one another. I am looking at how much an option costs per day compared to an option from a different month in the same futures market. Let’s look at Gold.

October Gold futures contract closed at 953.60.

(September options follow the October futures contract)

September Gold options have 35 days left until expiration.

October Gold options have 65 days left until expiration.

Let’s look at the call side. If we thought the market was going to stay steady, we can look to put on some option spreads. We want to buy options that will lose less premium per day and per week than the options we will sell. We don’t know for sure what will happen but we can get an advantage by looking at the price per day of the options.

We will look at the money calls and the out of the money calls.

September Gold 950 Call options settled at 29.40.

October Gold 950 Call options settled at 41.20.

The October 950 Call is 1.4 times more expensive than

The September 950 Call, but it HAS 1.9 times more time left.

September Gold 1100 Call options settled at 1.90.

October Gold 1100 Call options settled at 7.70.

The October 1100 Call is 4.1 times more expensive than

The September 1100 Call, but it ONLY has 1.9 times more time left.

Normally traders will sell the front month and buy the further month. That is great with the at the money options but not true with the far out of the money options. When putting on any calendar spread, buy the cheaper cost per day options and sell the more expensive. Even if you are not putting on a spread, this is a great way to choose which option to buy or sell.

For more information on these non-directional option techniques, visit the link below:

Educational Non-Directional Option Techniques

take care,

dave

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If you’d like to learn more about Dave and his options insight check out his site DeltaNeutralTrading.com