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Option trading strategies for high volatility


option trading strategies for high volatility

for the level of fear in the market. Two transactions are involved to create a debit spread. Implied Volatility takes into account any events that are known to be occurring during the lifetime of the option that may have a significant impact on the price of the underlying stock. Highly volatile stocks will fluctuate wildly, and often unpredictably, and so trading such a stock would be high risk. With the proper understanding of volatility and how it affects your options you can profit in any market condition. Very often, you know that some significant moves are about to take place, but you are not sure what the direction will turn out.

option trading strategies for high volatility

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The idea is that if the underlying security goes up, you make more profit from the long call than you lose from the long put. This is basically a cheaper alternative to the strip straddle. The markets and individual stocks are always adjusting from periods of low volatility to high volatility, so we need to understand how to time our option strategies. Short Butterfly Spread, this complex strategy involves three transactions and creates a credit spread. It is a known figure as it is based on past data. Buying put options (a long put) also has limited losses and almost unlimited gains. Volatility is a statistical measure of how the price of a stock is moving, and it has a direct effect on the price of options. The cboe Market Volatility Index or The VIX as it is more commonly referred is the best measure of general market volatility. If your trading software shows the values for Option Greeks, then you would look at the vega to get a value for historical volatility.

option trading strategies for high volatility

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