Category: Options

Buying options – how to increase the probability of success

In the most cases, options are bought by professional traders for hedging purposes. If you want to make money with options, you should rather sell them than buying them. The reason for this is, that option sellers have statistically a better chance to make money than option buyers. But how does it come? Well, first of all, professional traders usually don’t want to make money buying options. For them, buying options is just a hedging process and they know that they would usually lose money with it. But for them, losing “a bit” of money buying options but get hedged is a much better solution than a total loss. The other ones are private traders hoping to become rich over night buying options by assumption they would insanely increase in their value. But the most private traders have an absolute wrong approach, and that’s why they usually lose money buying options. In this article, I’d like to give you some general information how to increase the probability making profits by buying options. After that, you should get a better understanding whether buying options is a good idea or not.

What is margin?

The concept of margin is a very important one every trader (albeit an options trader or futures trader) has to deal with. It’s even such crucial you need to understand this topic that you should know that even some well-known professional traders got victims of their own rashness because they got trouble with the margin. As a result, they went bankrupt. In this article, I’ll give a rough overview about the concept of the margin. So read on, folks.

Trading earnings with options

Four times a year, there is a possibility for all options traders to generate quick profits by trading options. This type of trading is called earnings trading and it’s indeed a profitable one. But as every coin has two sides, it’s not suitable for everyone, and for inexperienced traders it might involve higher risks. Therefore, I’d like to give you a general introduction into earnings trading and also show you the catch of it.

What Is Implied Volatility

When you want to trade with options, it’s crucial that you get familiar with the term implied volatility as this metric is one of the most important tools you need in options trading. The reason for this is that disregarding implied volatility can lead to “unexplained” losses, even though the trade idea itself should have work out. Usually, beginners have some problems to understand this concept. But if you deal some time with this, you should be able to understand this whole topic and answer the question what is implied volatility. In this article I’ll give you a brief introduction about this metric.

What is IV Percentile and how to use it?

Although the IV Rank is a very useful tool to determine whether the implied volatility of a stock or commodity is high or low, it has a weak spot. This weak spot occurs for example always when the implied volatility spikes and generates outliers. This happens, for instance, during a crash. In this case you would get wrong conclusions considering only the IV Rank. The other weak spot of the IV Rank is that with this tool you can also get false conclusions although there are no outliers. One prominent example for this situation is the value of the VIX, the Implied Volatility Index. To make it better understandable, let’s first take a look at some examples. After this, I will continue with the answer for the question: “What is IV Percentile and how to use it?”.