Collection of Advanced Options concepts for Options traders
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In this FREE course, Options traders can look to fill gaps in their understanding of certain advanced concepts like Put Call Parity, Beta Weighting, Portfolio Hedging and more. The VIX Index plays a key role in Options trading, but its quite surprising that even many experienced Options traders don't fully understand the way it behaves. These mini-courses are once again insightful "nuggets" that help make Options traders more well-rounded in their knowledge and skills.
The topics covered in this Advanced Options concepts course are as follows.
Put Call Parity
SPX RUT NDX DJIA Intermarket Analysis
Beta weighting and hedging
Active Trader DayTrade Max Stocks Futures Options
Backtesting Using ThinkBack and On-demand
Volatility Futures (/VX)
Non-directional Strategies (Delta neutral strategies)
Iron Condor Setup
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|Section 1: Advanced Options concepts|
Free course on Put Call Parity, a unique relationship between the prices of Call options and Put options that must always exist at all times. In the Options world, there is a strict relationship between the prices of Puts and Calls. This relationship is called Put Call parity.
Rather than go into the theoretical details of what this relationship is (which can be very involved), it's best to understand the impact of Put Call parity by using a real-world trading example.
In this video, we take an example of a credit spread (Bear Call spread), and to understand the relationship, we look at an In the Money (ITM) Bear Call spread. For this position, there is a corresponding and equivalent position using Puts on the other side. Not surprisingly, this equivalent position is the Bear Put spread. Both these strategies will have (or should have) identical risk and reward characteristics. If it does not, then there exists an "arbitrage" opportunity, and the big players will move in to capture this risk free arbitrage using either Stock or Futures.
If you've ever wondered why Call Options also increase in value when Implied Volatility is increasing and the market is crashing, it is because of the Put Call parity. An increase in implied volatility will increase the value of calls and puts regardless of the direction the market or stock is taking. If this does not happen, then a Put Call parity arbitrage will open up. If it does, then usually this arbitrage opportunity will quickly close because of the big players moving in to get some risk free returns.
Intermarket analysis is the study of different indices and their performance differences. This example shows these differences in May 2014. This video studies the divergence between the 4 major indices -- SPX, NDX, RUT and the DJIA.
The troubling aspect is that the RUT is clearly in correction territory and is down about 10%. The Nasdaq (NDX) which was also down close to 10% has recovered about half that loss and is now down about 5%. The SPX and the DJIA is at all-time highs, or close to it.
Obviously, this is quite a large divergence between the major indices, and once again the conclusion is -- something has to give. Either the RUT and NDX have to move up to "catch up" to the other two -- or the SPX and DJIA have to come down. Given that we're seeing a divergence in the Bond markets also, perhaps this is a bit more evidence that a correction could be underway.
A small consolation is the price action of the RUT yesterday as compared to the SPX or the DJIA. Watch the video below for a detailed discussion.
If you have a portfolio of stocks and/or Options, and are concerned about a crash, you can use this technique to hedge your portfolio with 1 trade.
Hedge your entire portfolio with 1 tradeProtect against temporary crashes
How to use Beta weighting to hedge your portfolio
Regardless of how many stocks or Options there are in your portfolio, you can quickly hedge the entire portfolio with one trade. This free mini-course shows how you can protect against short term market and/or geopolitical event risks.
Understand the complex relationship between the VIX Index, the VIX Options and the VIX Futures.
How are VIX Options pricedAre the VIX Options really a good hedge
The VIX Options are a unique instrument in the markets. If you've ever seen your VIX Call options not increase in value even though the VIX spikes, there's a very good reason for this. Understand how the VIX and the Volatility Futures work.
With Options, you can construct non-directional strategies. This means the strategy benefits regardless of the direction of the stock move.
In non-directional strategies, you don't care if the Stock goes up or down. Your strategy profits from a move in either direction. The strategy starts out Delta Neutral - or at least you should try to construct it that way. But this does not mean your position will remain Delta neutral forever. In fact, your position will achieve a +ve Delta or a -ve Delta bias, depending on the stock's movement. But these strategies have one clear advantage over others. You don't have to be right in forecasting the direction of stock movement, and that fact alone put these strategies in our Favorites.
Free course on the Setup considerations for the Straddle. The Straddle is the ultimate Volatility trade and falls under non-directional trading.
The Straddle trade is very popular - Options players love it for the fact that you can make money whether the stock goes up or down. As long as it makes a big move in either direction, the Straddle makes money. What many won't tell you are the pitfalls in the Straddle trade. The video below discusses a Straddle trade on Priceline (PCLN) on the Dec series with about 31 days to expiry.
The key features of a Straddle trade are -
- You're Long both a Call and a Put Option, and this is generally put At the Money
- Both Long Options have a Delta of approximately 0.5 (because they are At the Money)
- The position itself is a Delta neutral position to begin with (+ve Call delta neutralizes -ve Put delta)
- Since you're Long both a Call and a Put, your position is Theta negative (twice over)
- Since you're Long both a Call and a Put, your position is Vega positive (twice over)
- You can reduce loss from Theta by going into further months, but you will face higher Vega exposure
- You will also have a wider breakeven range because you pay more for further out Options
- Your max loss (debit on the trade) is the what you pay for the Call + what you pay for the Put
- You are guaranteed a profit if the stock moves more than the debit on the trade in either direction
Ok, so that's the basics. This video explains this setup in detail.
A free mini-course on all the considerations for putting an Iron condor trade, one of the most popular advanced Options trading strategies.
The Iron Condor is one of the most popular advanced strategies amongst advanced traders. There are several reasons for this - the trade is non-directional so you can profit from movement in either direction. You get to keep double the credit for less risk than if you'd just put a normal credit spread. And most importantly, one leg is an automatic winner. It's hard not to like an Iron Condor - and its got the coolest name in town :). We show you how to setup the Iron condor, and the things to watch for. We also cover Iron Condors in detail in the Advanced Modules VI and VII. CAUTION - do not attempt an Iron Condor unless you're a master at putting on credit spreads and managing them successfully
Mini-course on how to use the Active Trader feature on Thinkorswim to trade Stocks, Futures as well as individual Options intuitively.
Active Trader DayTrade Max Stocks Futures Options
Quick way to trade Stocks, Options and Futures
Use powerful tools on the ThinkorSwim platform to backtest your trades. Understand how ThinkBack and Think On-demand works.
Backtest your trading strategies accuratelyLearn where things went wrong
And improve your trading strategies with these powerful Backtesting tools on the Thinkorswim platform.
Options Advanced Quiz
Knowledge. Strategy. Execution.
Hari Swaminathan is the founder of OptionTiger, a cutting-edge Options education and trading company based in Washington D.C.. Hari is an entrepreneur, everyday person and a self-taught Options expert for over 8 years. Hari has a Bachelors degree in Engineering from India, and MBA degrees from Columbia University in NYC and London Business School in the U.K.
More than ever, its become important for everyday people to take control of their financial situation, and create additional income in a smart, risk-controlled manner. This is precisely my mission. Through knowledge, education and investment discipline. Options are powerful, but they have a learning curve. I've broken down all the complexities of Options in simple language that everyone can understand. The courseware uses real trade examples, always highlighting the pluses and minuses of every investment situation. Options provide the best way to take advantage of bull cycles, bear cycles and everything in between.
As someone that has self-learnt Options and through making mistakes, I can tell you Options trading is not something you should take lightly. You will hear people talking of fantastic triple and quadruple digit returns. I'm here to be brutally honest with you -
- Be very very careful in the first 12 months of Options trading.
- This is when everyone is the most vulnerable to losing money.
- Your main objective during this time is to focus on learning this craft and not lose money during this time.
Having said that, if you can get past the first 12 months and acquire the expertise in a systematic manner, true financial independence awaits. Options are a mathematical and strategic game much like Chess, and no amount of technological advances can make this skill obsolete, because the fundamentals of Options are never going to change.
You can trade Options from anywhere in the world, regardless of how old you are. You never have to worry about job security any more because you have a skill that can produce consistent wealth month after month.
But you have some serious but exciting work to do before you can get there, and I'm here to help you in this journey.
Watch my Free Course for Options Trading Beginners where I draw out a detailed roadmap of what this 12-month journey looks like, and the specific strategies you should master during each step of this learning process.
Watch my Free Mini-courses or my YouTube channel , all of which have the highest quality of education material.
And join me in my UDemy courses, where I share cutting-edge theoretical knowledge mixed with practical insights, strategy and impeccable execution through live trading examples.
If you have any questions at any time, please feel free to message me on Udemy.
The order to follow on my Udemy courses
Comprehensive guide to Financial Markets, Investing and Trading
Options Trading Beginners Bundle (3-course Bundle)
Advanced Options Concepts
Options spreads and credit spreads Bundle
Technical analysis and Chart reading Bundle
After this, the order does not matter. You can take any of the courses as per your interest.