Collection of Advanced Options concepts for Options traders
- 1.5 hours on-demand video
- 2 downloadable resources
- Full lifetime access
- Access on mobile and TV
- Certificate of Completion
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- If you trade Options already, this collection of insightful nuggets will significantly enhance your skills
- Get a deeper understanding of Option market concepts like Beta Weighting and advanced portfolio hedging using Options
- Learn to look back in time and backtest any strategies using advanced analysis tools
- Understand the principles behind Non-directional strategies (also called Delta Neutral strategies)
- Master the setup considerations for advanced strategies like Iron condors and Straddles
- Single options, and some basic understanding of vertical spreads
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
- Options traders who have an intermediate knowledge of Options
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.
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
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
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.