Intermediate Options trading concepts for Stocks and Options
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Each of these Options concepts tackles a single topic, and drills it deep down. Think of these as "nuggets" that will improve your overall understanding of Options, the methodologies and the approaches you would take when taking a trade. Collectively, they'll give you a very good understanding of the Options market structure itself.
These Options concepts covers different areas - some are pure Options concepts, others have to do with understanding the details of spreads and their risks and rewards. And then we also cover some Order management and trade simulation topics as well as some best practices in Options trading.
The complete list of Intermediate concepts covered are as follows.
Option Risk Graphs and Greeks
Debit and Credit Spreads
Margins for Debit and Credit Spreads
Understanding Stop, Stop Limit and Trailing Stop orders
Pattern Day Trader rule
Selling Naked Puts
Trading the SPX Index with Leverage
Beta Strategy Selection
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|Section 1: Intermediate Options concepts for Stock and Options traders|
Risk Graphs are one of the most important tools available to Options traders. This video explores the use of Risk graphs. When analyzing an Options position, its helpful to put yourself in the role of an airplane pilot using Option risk graphs. A pilot needs two tools - a "Map" to know where you want to go, and an "instrument panel" that can reliably get you there. In this video, we show you these two tools in the Options trader's arsenal. A "visual" understanding of your positions are key - we introduce these concepts in this video, but these concepts are applied in almost every video throughout the courseware. Option Greeks play a vital role in understanding how your position will behave under different market conditions.
Using the different types of Orders can provide a strategic edge. Learn about Stop, StopLimit and Trailing Stop and much more..
What are Stop and StopLimit orders
What are Trailing Stops and TrailStopLimits
When do you use each order, and how do you use it effectively.
The Pattern Day Trader rule is an important SEC rule for Option traders. Get the complete details on this rule.
Who is a Pattern Day Trader
What are the PDT rules
How can traders avoid a PDT classification
This video provides all the details an Options trader needs to know about the Pattern Day Trader rule.
There are two kinds of Options spreads. This free mini-course explains the key differences between debit and credit spreads and their risk profiles. Debit and Credit Spreads are an intermediate level Options strategy, but they form the centerpiece of the Options playbook of strategies. If you can master Options spreads, you can easily tackle the advanced strategies because most advanced strategies can be broken down into spreads. Spreads are perfect for busy professionals because they control risks and provide for better capital management even better than single Options. Credit spreads can be used on a monthly basis to create a regular monthly income. We introduce the two types of spreads in this video, but we have a set of courses dedicated to Spreads.
Credit spreads and Debit spreads are very different and so are their risk, reward and margin requirements. This free course explains it all.
Debit spreads and credit spreads have vastly differing characteristics. Debit spreads assume the profile of an Option buyer, whereas Credit spreads assume the profile of an Options seller. When you're an Options seller, its helpful to think of yourself as an "insurance company". When you insure your car, your risk is low - its limited to the insurance premium you pay. This is the profile of an Option buyer. When you're an Options seller, you are the Insurance company. This is obviously more risky, but...hold on..Insurance companies would not have become some of the largest companies in the world if their model was flawed :)
Options prices move due to three factors. Price, Time and Volatility. This course shows how to model and simulate your Options position. In any Options position, its important to use a trade simulator and get a good feel for how your trade will perform over a period of time. There are 3 parameters to simulate your trade -
- Price movement (Delta and Gamma)
- Changes in Implied Volatility (Vega)
- Time Decay (Theta)
This video shows how a Bear Call spread on the S&P 500 ETF (SPY) would perform with changes in Price, Implied Volatility and Time decay. The December series has about 36 days to expiry. Using the built-in trade simulator on the Thinkorswim platform, we can see what happens to the trade changing all 3 parameters. Trade simulation and analysis gives insights about adjustment points and profitable exit points.
Free course for traders looking for leverage on the S&P 500 can use any of these trading instruments for an additional benefit and returns. Have you ever wanted to trade the SPX Index with built-in leverage ? Let's look at existing choices and some new ones that have cropped up.
There are several ways to trade the SPX Index (or the S&P 500 Index in general).
- SPX Index options itself. There is no leverage here. And this is a large Index and Options can be expensive, not to mention a Bid-ask spread as wide as the Panama Canal.
- SPY ETF. Great ETF, 1/10th the size of the SPX, fantastic liquidity, and a 1-cent Bid-ask spread. Can't ask for anything better. But its a bit boring, and you have to buy large quantities. And no leverage.
- SSO and SDS. These ETF's have a 2X leverage on the SPY. Not bad. Decent liquidity with about a 5-cent Bid-Ask spread. Definitely acceptable.
What if you want more ??
Well, it seems like two instruments have come up recently - the SPXL and the SPXS. As the names might suggest, the SPXL is a Long-instrument (3X leverage of the SPX), and the SPXS is a short version (also 3X leverage.). I've been watching these for some time, and they are interesting. But they are still new, so liquidity needs to come into these instruments.
Check out this video I made on these two instruments. BOTH HAVE 3X leverage, but the price of the stocks is reasonable, so the Option prices are also reasonable.
Traders must understand the risks involved with selling Naked Puts. They are a perfectly viable strategy in one circumstance. What are the risks in Selling naked Puts and when should you sell Naked Puts. Learn to sell Naked Puts the proper way. But you must apply them smartly as they have risks..
Free mini-course on Stock Betas and how to design and analyze Options trades using Beta. Beta is the correlation of any stock to the Index.
As we enter September, there is quite a bit of uncertainty in the global scene. An attack on Syria seems all but given at this point, and there is a looming battle in Congress over the debt ceiling and Obamacare. All of this seems to indicate a volatile month in the markets.
Given these conditions, it helps to review how we choose stocks, and then more importantly how we choose individual strategies for such an environment. An important consideration during these times is Beta of a stock.
Beta is defined as the correlation of all stocks to the S&P 500 Index (SPX). A calculation is made based on the past 12 or 24 months or any other length of time, and the price movement of a stock is plotted against a $1 movement in the SPX, and a correlation is calculated. Stocks that have a Beta of more than 1 are said to be well-correlated or strongly correlated. Stocks that have a Beta of 0.5 or less are said to be weakly correlated..
The following video explores the concept of Beta, and the video also discusses the general trading environment we can expect to see in September. And most importantly, what strategies would we choose and what are the considerations for such a market environment..
Options concepts 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.