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OptionsTradingStrategies for aVolatileMarket

Five SimpleOptionsTradingStrategies forConsistentProfits in aVolatile Market

Table Of ContentsIntroductionChapter 1 – OverviewChapter 2 – Basics of VolatileOption StrategiesChapter 3 – Account TradingLevelsChapter 4 – Long Straddle

Chapter 5 – Strap StraddleChapter 6 – Long StrangleChapter 7 – Strip StrangleChapter 8 – The Long GutChapter 9 – Final NotesConclusion

IntroductionI want to thank you verymuch and congratulate youfor downloading the book,Options Trading Strategiesfor a Volatile Market–FiveSimple Options TradingStrategies for ConsistentProfits in a Volatile MarketThe goal of this book is tohelp people who are already

familiarwithoptionterminology and the basics ofhow the options marketworks.In this book, you’ll discoverthe five best options tradingstrategies for a volatilemarket. For each strategy,you’ll learn how it works, thebest times to use it, the riskand reward dynamics, andyou’ll be taken step-by-stepthrough complete examples.

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ChapterOverview1–This guide is to help peoplewho are already familiar withoption terminology and thebasics of how the optionsmarket work. It is designed togive you an overview of themain strategies for usingoptions when the marketconditions are volatile.

Making money in a volatilemarket is risky as a volatilemarket means that prices canrise and fall dramatically.This is significantly differentto a bearish or bullish marketas your strategies have to beable to profit when the priceof the underlying asset movesby a significant amount ineither direction, and not justin one.The reason that options are

held in such high regard byprofessional traders is thatyou can set up strategies thatallow you to make a profitregardless of whether theprice of the underlying assetmoves up or down, as long asit does so by a significantamount.Large pricemovements are not the onlykind of volatility that youneed to consider when talkingabout a volatile optionmarkets though.

As an experienced optiontrader you should already befamiliar with the Greeks, andknow that the Vega shows theimplied volatility of an optioncontract.A change inimplied volatility can have adramatic effect on the cost orpremium of the option, andyou always need to be awareof implied volatility for thisreason. Therefore a volatileoption market can be whenprices jump quickly or when

the impliedincreasing.volatilityisIt is important to note thatalthough implied volatilityshould increase when there isa major news event affectingthe underlying asset, anddecrease when the market isquiet.It is possible forimplied volatility to changewithout any obvious reason.This is due to a shift in themarket perception of what the

implied volatility should be,rather than from any factualcause. Implied volatility willincrease with demand for aparticularoption,anddecrease if demand is low.

Chapter 2 – Basics ofVolatileOptionStrategiesThe basic theory behindconstructing an effectivestrategy for a volatile marketis to take advantage of duodirectional profits. What thismean in its simplest form isthat you are setting up

positions that are made up oftwo parts. The first part is toset up a trade that will gainmore than it will lose whenthe price of the underlyingassets rises, and the secondpart does the opposite. Thismeans that it will gain morefrom the rapid decline in thevalue of an option than it willlose.The simplest version of this isto use a combination of long

calls and long puts in thehope that the change in theprice of the option due tohigh volatility will push oneof these two trades intoenough profit to cover thecost of the one that is going tobe out of the money. Morecomplexstrategiesforvolatile markets work bycombining bullish and bearishoption strategies in a way thatwill accomplish much thesame thing. When setting up

a volatile option strategy thething that you want to lookfor is a high Gamma valuewith a neutral or almostneutral Delta value.A good time to implement avolatile option strategy iswhen there is a potentialincrease in the impliedvolatility on the market, evenif the prices have not yetstarted to move. This will setyou up for success at the

lowest possible cost, and willoccur when the strategy thatyouareconsideringimplementing has a positiveVega value. Just by having apositive Vega value ifeverything else stays thesame, the position you haveselected should make a profit.Evaluate your volatile optionstrategies in periods beforeearnings release statements,or other key financial

information about a companyor the market as a whole.Volatility across the markettends to increase during theseperiods. As soon as you seethat implied volatility hasstopped increasing and hasreached its peak, then youshould close the strategy.Thereisavolatilitymeasurement index calledVIX that a lot of traders useto track implied volatility anddecide when volatility is

increasing or has peaked.

Chapter 3 – AccountTrading LevelsIf is important to understandthe account trading levels thatapply for option tradingaccounts.Some of thestrategies in this guide requirehigher trading levels thanothers. Often referred to asyour ‘trading’ or ‘approval’level, it is set by your broker

based on your net worth, andyour level of experience intrading options.In most cases, when you firstopen an option account youwill be given a level of 1.You will need a higher levelthan that to implement thetrading strategies in thisguide, so you need to contactyour broker and discuss whatyou are looking to do, andwhat he needs from you in

order to get the approval youneed.Level 1 allows you to tradecovered calls and protectedputs. This means that youneed to own the underlyingasset and is not much use fortrading options. At level 2you are able to buy call andput options. You are not ableto use debit spread strategiesuntil your approval level hasreached level 3. You cannot

utilize credit option strategiesyet, as this is at level 4.Level 4 will also allow you totrade short butterfly spreads.The reason that the approvallevel is so high is that creditstrategies are complex andrequire a lot of experience toknow exactly what yourprofit or loss can be. Level 5is the highest level andusuallyreservedforinstitutional traders as you

can write call and put optionswithoutowningtheunderlying asset. This isextremely dangerous as youare exposed to a very highrisk.

Chapter 4 – LongStraddleThis is one of the moststraightforward of all of thevolatile option strategies, andallows you to make a profitwhether the value of youroption contracts increases ordecreases, as long as it doesso significantly. This meansthat the best time to employ a

Long Straddle is when youexpect the value of anunderlying asset to suddenlymove either up or down veryquickly. The usual reasonwhy the value of anunderlying asset will do thisis often a major news event.Setting up a long straddle isvery simple and can beexecuted very quickly. Whatyou need to do is to executean at the money call and an at

the money put at the sametime, for the same underlyingasset, expiring at the sametime, and as far away as youcan get. The potential profitis unlimited as if the value ofthe underlying asst risessharply, then you will make aprofit on the call less the costof the two premiums.Similarly if the value of theunderlying asset sharplydrops in value you will makeunlimited potential profit on

the put that you purchased,less the cost of the twopremiums.