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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 Mentoring company, and a full-circle educator in all areas of Financial Markets, Hari has developed several proprietary Intellectual Property "methods and approaches" around enhancing base case Options strategies (which favor the Market Makers) and turns that deficit into a massive EDGE on the trader's side.. Like building a powerful Strategy "for all Option Strategies".
Hari is self-taught in Options and actively trading these instruments for almost 10 years, mostly through trial and error. Trial and error in general, is an excellent method of learning, but applied in this context, trial and error CAN BE EXPENSIVE. My courseware focuses on this aspect mostly, so you can avoid losing money in the 1 to 2 years when you're learning. Yes, it does take that long, if not more. If the markets were indeed simple, you'd have everyone involved in it. Patience, Diligence, and Determination are what you need during this time.
Hari has a Bachelors degree in Engineering from India, and MBA's from Columbia University in NYC and London Business School in London UK.
More than ever, its become important for normal people to take charge of their financial situation, and truly understand how financial markets, and the various asset classes, trading nuances really work. Investing in the financial markets is no longer a HANDS-OFF ACTIVITY. There's no point blaming financial advisors after the fact. Now, it's become crucial for everyone to do "their OWN homework", so you can decide for yourself whether something is good or risky. This is of course easier said than done, and that's exactly where we come in.
My mission is to educate everyday people on the deep, strategic underpinnings of the stock markets, and exploit that knowledge with the use of OPTIONS. THERE IS NOTHING RANDOM about the markets. There are surprises all the time, but there's always a method behind every madness. And my goal is to get you to this point of understanding and awareness. That's when it starts to fit in.
Knowledge, Education, Crafting Breakthrough strategy, Technical analysis, Following Smart Money, Risk management, Disciplined Money management, and near flawless Execution approaches are just a few of the crucial points emphasized in all the Courses. Video-based education courseware, Practical workshops, several elite proprietary Advanced systems, a 4-week Live Mentoring program are just a few things we offer. The goal is to provide a "full circle" education in the Markets, which is necessary before it starts "fitting in".
Let's break down the Options game in a realistic manner.
1. Options were invented out of thin air. And the people who invented them won Nobel Prizes for their invention (Fisher and Black). It is purely a "Mathematical" concept, with no real connections to the external world except for one, that's defined implicitly in its design.. Its fascinating, mathematical, strategic, risky, but can also provide the basis for life-long income streams. There's focus on Analysis, Data science, Statistical Modeling and Probability theory.
2. This gives rise to very complex but interesting analytical scenarios. It also gives us the ability to model Options with a set of tools like a car dashboard. In many cases, you don't need to see what's going in the Markets, or the Stocks themselves. This data is embedded in the mathematical formulas that underpin Options structure itself, and you can operate on the basis of your Dashboard.
3. Because everything in Options is defined in mathematical terms, its also important to realize that OPTIONS will always be the same. The math behind Options will always be the same. Forever. Unless they discover serious flaws in the formulas and models used by these Nobel winners. And of course, sadly, if it were the case, the Nobel prizes would have to be retracted and we go back to the drawing board again. But today, several well developed markets around the world exist purely based on their Mathematical Modeling of RISK.
4. Options and Chess have LARGE overlaps. You may agree that Chess is a game of "skill". It's a game of Strategy and depends upon how well you can plan (ahead) to attack, defend or take a neutral position. We also believe that Chess is strategy-focused and depends upon certain mathematical principles. Why or How do we know this - The reason we know its a game of skill is : Try to play 100 chess games with Kasparov or Anand. Normal people are almost guaranteed a loss in all 100 games. So it has to be a game of skill. And why do we know its underlying features are mathematics based. The fact that a computer like Deep Blue beat the GrandMaster Garry Kasparov in 1997, proved to be both shocking, and revealing at the same time. While human beings abilities have not increased in exponential terms during the last 20 years, and we may be able to plan 3 or 4 or 5 moves ahead, the computer of today can calculate a 1000 moves ahead, go down every possible path, and record the outcomes like photographic memory. This is a capability that humans may never achieve, proving that Math plays a key role. So today, every professional Chess player refuses to play the machine, because it's almost guaranteed that the Masters WILL LOSE EVERY GAME.
5. Lastly, You MUST believe this completely - Options, just like Chess, are a "skill set", and requires acquiring a deep set of analytical skills much more so than most skill sets in the world, and THEY can only be MASTERED over a period of time. Once you understand Options better, you'll realize how true this is. We cannot turn into a Kasparov in a matter of weeks or even a few months. It does NOT work like that. But once you go through this process that can go for 1 to 2 years or more (depending upon your commitment to this process), there is a very powerful light at the end of this tunnel. You build a skill set for life. Age, Geographical location, Lifestyles, or Weather are no longer a barrier to creating consistent income streams, regardless of who you are, where you are, or how old you are.
This is very POWERFUL stuff.
Now let's look at the negatives. This is what most people will NOT tell you. Anyone that tells you Options are SIMPLE, and you can make extra ordinary income easily, is JUST NOT TRUE. I will tell you Options can be brutal if you simply apply speculative methodologies. Then you should just STICK TO STOCKS, which are nothing BUT speculation, with a minute role in STRATEGY Give yourself time to master this CRAFT. And once you can develop a SYSTEMATIC approach to every situation (which is the Real Game), you'll be well on your way to consistent performance.
Options are easily the most fascinating financial instrument with several upside benefits, but also an equally powerful set of negatives.
1. Options have a steep learning curve. Don't expect to become Kasparov in a couple of months. Or even a year or two. And why is this important to realize: Because we are playing a Kasparov or Anand every time we enter the Options market. Market Makers who are 99% of the time, the counter party to all Options trades, are Options professionals, with 10 to 20 years of experience, in performing their "legal duty" of providing liquidity. While we have hours to plan our attack, the Market Maker literally has a few seconds. In a normal day, a market maker can do many thousands of trades. One can only be in awe of their skills.
2. If you're interested in Options, try NOT approach it with a mindset or requirement of making money. This is not only NOT going to happen, but its a recipe for disaster. It's like a student of Medicine wanting to practice their skills after 2 months of study. To develop a meaningful batting average, you will need Time, Patience, and Perseverance. They don't develop overnight. Focus completely on the learning, ideally practicing on paper money accounts because you WILL LOSE at first.
3) As someone that has self-learnt Options and through making mistakes from Trial and Error, 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 (too much) money
Having said that, if you can get past the first 12 months and acquire the expertise in a Systematic manner with Systematic approaches to every situation, true financial independence awaits.
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 income month after month.
But you have some serious but exciting work to do before you get there, and I'm here to help you in this journey.
Watch my Free Mini-courses or my YouTube channel , all of which have the highest quality education in Options as well as Financial Markets..
And join me in my UDemy courses, where I share cutting-edge theoretical knowledge mixed with practical insights, strategy and impeccable execution approaches, through live trading examples. How do we know it's all this (don't just go by my word). Check what 25,000 students have to say in 2100 Reviews, with almost 2000 of them being 5-Star or 4-Star
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.