Swing Trading Options Straddle

Volatility is important factor in option pricing. In essence it means how much a price varies, or goes up and down. If the price of the underlying is varying wildly then there’s a high volatility. This is a measured and calculated value that is referred to as statistical volatility (SV).

It is easy to see that a high volatility generally means that an election will be priced higher, as it is more probable that the option will become ‘in the money’ and become profitable. A low volatility should mean that the choice is cheaper, as it is not likely to pay out. However, the true SV may not be taken into account in the option price. The volatility that manifests itself in and refers to the pricing of the election is called the implied volatility (IV). this may be different from the SV.

Adding to this discussion.

If you have taken an option trading course, you’ll be in a position to recognize this disparity and trade appropriately. If you calculate what the true price of the option should be using the models, you can then buy any options that you feel undervalued, and sell options that are overvalued, and you’ll put the odds on your side statistically.

Also with swing trading, using very short-term long options is sensible. Swing traders expect a three-to five-session turnaround. So options expiring in three or four weeks, opened at the money, are going to be most responsive to price movement in the underlying. Long puts are bearish plays in the upper part of the swing, but vastly less risky and cheaper than shorting stock. This alone makes the long option swing trade a worthwhile endeavor; and because options are so much cheaper than actions of the underlying, options open up the way to better diversification as well.

Swing trading options straddle

The Chicago Board Options Exchange (CBOE) publishes a volatility index called the VIX. In recent months it has been showing high volatility. This is important in swing trading the options market. An excellent options trading strategy when there is high volatility is the Straddle. This is a great swing trading strategy. It simply means buying both the call and put options on a fiscal instrument. Inevitably, one of these measures will be wrong, and the money spent will be lost. The other option, for a step in the opposite direction, stands a good opportunity of becoming ‘in the money’ with a high volatility underlying security, and the Straddle will gain any time the profit from the winning option is greater than the combined costs.

FAQ’s: Straightforward Options play………?
Let's say I wanted to simply use options as very high beta replacements for the underlying for swing trades. No fancy spreads, iron condors, saddles, straddles, etc.. Just for example, on a regular basis, if I expect stock XYZ to be bullish for the next 48 hours, I'll buy some naked calls etc. Based on this, is it usually enough to simply go for the most liquid options? There really wouldn't be a need to go looking for over / undervalued options right? Assume that the underlyings are big, very public stocks like C, HPQ, AAPL etc. So the odds of the top volume options being under / over valued are very slim

  • That's true. The major brokerages and option houses are tied directly into the exchanges with their own computer systems and algorithms that hedge and correct variations. If you do see what appears to be an undervalued option, it is usually just an old quote or will disappear as soon as you place a bid. That said, there are still normal fluctuation and ranges that expand and contract with volatility. If you chart option price, in addition to the underlying, you will use these limits with good trading strategies, for example, go long at the bottom of a range on a pullback, rather than paying a high premium on a breakout with huge risk. Monitoring the expansion/contraction of premium with an options trading program will give you a sort of undervalued and overvalued price, similar to what you're asking. You need an edge in the advanced trading arena, and a good options valuation program will at least put you in the same league and on even footing with the pros, and give a good heads up on the Greeks, delineating what it is you're trying to do.

  • Let me see if I understand what you're saying… If you form the opinion that the market is advancing, you what to buy a call to take advantage of the price move? In my opinion this is a poor strategy. Your option greeks tell the story. http://www.strategic-options-trading.com/Greeks.html . Your position will be negative theta. This means that the passing of time will hurt your position. I think a better strategy would be a butterfly where the short strike is place where you expect the stock to move. You could also use a calendar spread the same way. This page will teach you have to trade calendars: http://www.strategic-options-trading.com/calendar-spreads.html . Options were never intended to be used for leverage. They are designed to take off risk.

  • Hmm, not sure if you understand options: naked call?? Look at it this way if you buy a stock you need the stock price to go up to make money. If you buy a (call) option in that stock……er……you need the stock price to go up to make money. The difference? Gearing. So you need to establish that a stock will rise (for a call) in a certain timescale then buy the option that ties in with that timescale (no point buying unrequired time value). Secondly you need to select itm,atm or otm or appreciate how each of these will move relative to the movement of the underlying: pretty basic stuff.