Daily Option Trading Commentary

Not Horrible - Is Good. Assets Are Rotating Out of Bonds and Into Stocks.

Yesterday, the market chopped around for most of the day after a huge run-up Wednesday. That was an encouraging sign for bulls. By late afternoon, the market rallied and it closed on its highs. Earlier in the day, initial jobless claims came in slightly better-than-expected and optimism ahead of the Unemployment Report surfaced. Even though 472,000 jobless claims were filed, traders were relieved that new claims have stopped rising. In recent weeks, initial jobless claims have spiked higher and that trend has stalled. Even if 200,000 jobs had been lost in August, I doubt the market would have sold off.…

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Option Trading Article of the Week

Option Trading - Why I Trade Relative Strength and Relative Weakness!

Posted by Pete Stolcers on January 12

In today’s option trading blog I will discuss relative strength and weakness. This concept is critical to my trading system. Every day I search for stocks that are strong or weak relative to the market If I’m successful at identifying this trait I can build a basket of long and short positions and reduce my market risk. This is my “edge”. I can actually get the market wrong and still make money. When I turn on my screen in the morning I hope for a big market move in either direction. I’ll bet most of you have never had that…

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Stock Options Question of the Week

Surrogate Market Positions - How and Why?

Posted by Pete Stolcers on March 11

Question Over a year ago, I featured this question in my option trading blog. The market conditions have changed, but the concept has not. Lee T. asks, “Can you recommend a stock that I can use as a proxy for the S&P? I would like to make directional bets on the market for seasonal trends such as a year-end rally, and swing trades spanning a few days or weeks. But options on SPY don't seem to work well since the SPY has a historical volatility of six. I've seen some people use GOOG as a market proxy but I am also not wild about options on a $400/share stock that trades on the NAS. Are there any NYSE stocks that might work better?

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Stock Option Trading Education

When Options Trade at a Discount: An option that is trading below its intrinsic value is trading at a discount. For instance, a $50... read more
Index Options and Indices: Index options include baskets of stocks that are combined from group or sector indices. The most... read more
Option Expiration Month & Lifespan of Options: Options have a defined life and option traders select the duration that matches their forecast.... read more
Synthetic Put Position: Option traders often construct synthetic put positions to hedge their short stock positions. When... read more
stock option contract: An option contract gives the buyer of the option the right, but not the obligation to buy (call)... read more
Back Month Options Expiration : Back month stock options have more than one month before they expire. They are slightly less... read more
Strategy for Synthetic Call Options: In a Synthetic Call Option, the investor can create a pseudo call position by buying puts that... read more
Definition of Option Gamma: An Option Gamma measures the change in Delta for every one dollar change in the underlying price... read more
Out of the Money (OTM) Options: A call option with a strike price that is much greater than the current stock price is considered... read more
Call Options & Naked Call Writing: A call option gives the buyer the right, but not the obligation, to buy the underlying stock or... read more
Front Month Option Expiration: The nearest term stock option is referred to as the front month. In a four-week expiration cycle,... read more
Options and Time Value: The Time Value of an Option is the amount by which the price of a stock option exceeds its... read more
Parity and Stock Options: Stock Option Parity means that the stock option is trading at its intrinsic value. If a $100 call... read more
Option Pricing Models - Black Scholes: The Black-Scholes Option Pricing Model is a financial model thatl was developed in 1973 by Fisher... read more
Option Premium Pricing and Intrinsive Values: An option premium is the price of the stock option. It is comprised of intrinsic value and time... read more
Strike or Exercise Price on Call Options: The strike price (exercise price) is the level at which the buyer of a call option can exercise... read more
Definition of Option Vega: An Option Vega measures the change in the price of a stock option relative to a 1% change in... read more
Option Exercise Price: An option exercise price is the price level where the option starts to take on intrinsic value. It... read more
Option Ask Definition: An option ask is the price an option seller wants to receive for the option. If the option is... read more
Options in the Money: A call option is where the strike price is lower than the current price of the stock is considered... read more
Put Option & Equity Puts: A put option gives the buyer the right, but not the obligation, to sell the underlying stock or... read more
Option Bid/Ask Spreads and Liquidity: The Option Bid/Ask Spread is the difference between the stock option bid price and the ask price.... read more
Types of Option Spreads: An option spread is created when a trader simultaneously buys and sells options with different... read more
Four-way Options Spreads: A 4-Way Option Spread is the same as an iron condor spread. The option strategy sells an out of... read more
Accelerated Time Decay: Accelerated Time Decay refers to options that have less than a month to maturity decay at an... read more
Married Puts Options Strategy: In a married puts option strategy, the investor owns shares of stock and purchases an equal number... read more
Time Premiums, Value and Volatility: A time premium is the amount by which the price of a stock option exceeds its intrinsic value. If... read more
Option Trading for Investment, Speculation and Hedging: Option trading involves investors and speculators buying and selling stock options before they... read more
Derivatives & Underlying Stock Option Value: A derivative in the context of finance is a contract whose value is dependent on another... read more
Iron Condors: An iron condor is typically a non-directional option spread where the trader sells an out of the... read more
Definition of Option Delta: An option delta measures the change in the price of a stock option relative to the change in the... read more
10 up Option Market Definition: Ten-up Option Market - Market Makers provide liquidity and they are members of the exchange. They... read more
Butterfly Option Spreads: In a Butterfly Spreadstrategy, all of the expiration months are the same. A trader buys a call... read more
Time Decay and Options: Stock options are a wasting asset. From the day you purchase them, their value goes down if the... read more
Option Bid Definition: An option bid is the price an option buyer is willing to pay for the option. If the stock option... read more
Intrinsic Value and Option Trading: For in-the-money call options, intrinsic value is the difference between the stock price and the... read more
LEAP Options & Expiration Dates: LEAP stock options have more than six months until expiration. They can have a lifespan of up to... read more
Options At the Money: When the stock price is the same as the strike price an option is considered at the money. The... read more
Option Strategy: Options are one of the most dynamic investment vehicles available to traders and investors. Option... read more
Definition of Option Theta: An Option Theta measures the rate of decline in a stock option due to the passage of time. Theta... read more
Options Listed on Multiple Exchanges: Multi-Listed Stock Optionsare stock that have options that are listed on more than one exchange.... read more
Diagonal Option Spread: A Diagonal Spread is an option spread where the trader buys a longer-term option and sells a... read more

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