Rule for Success #8 – Pay Attention to Volatility
Volatility speaks to how likely a price change will occur over a specific
amount of time on the financial market. Volatility can work for an options
day trader or against the options day trader.
It all depends on what the
options day trader is trying to accomplish and what his or her current
position is.
There are many external factors that affect
volatility and such factors
include the economic climate, global events and news reports. Strangles and
straddles strategies are great for use in volatile markets.
There are different types of volatility and they include:
Price
volatility, which describes how the price of an asset
increases or decreases based on the supply and demand of
that asset.
Historical volatility, which is a measure of how an asset
has performed over the last 12 months.
Implied volatility, which is a measure of how an asset will
perform in the future.
Rule for Success #9 – Use the Greeks
Greeks are a collection of measures that provide a gage of an option’s price
sensitivity in relation to other factors. Each Greek is represented by a letter
from the Greek alphabet. These Greeks use complex formulas to be
determined but they are the system that option pricing is based on. Even
though these
calculations can be complex, they can be done quickly and
efficiently so that options day traders
can use them as a method of
advancing their trades for the most profitable position.
