In option trading a straddle play is created when two option trades are opened in the same underlying asset at the same strike price at the same expiration date but with both a call and a put. One side of the option play will become higher priced in an uptrend and the other will move higher …
An Iron Condor trading strategy is an option play that is created with two vertical spreads. An Iron Condor is a combination of both a put option spread and a call option spread that have the same expiration date and four different strike prices. A long iron condor is when an option trader sells both sides …
A ‘Poor Man’s’ Covered Call option play is a way for an option trader to structure a very similar type of risk/reward ratio as an ordinary covered call but with much less capital required. A ‘Poor Man’s’ Covered Call is another name for a Long Call Diagonal Debit Spread that is used to create a …
In Black–Scholes option pricing model, the implied volatility or ‘IV’ of an option contract is the cost embedded in the option of the volatility of the underlying instrument that it is being valued against. Volatility is the input in an option pricing model that measures when an asset will likely return to a theoretical value …
This is a guest post by Jake @TrendSpider. In this weekend blog post, we take a look at the continued wild ride the markets took last week. Make sure to check out our Sunday Chart Show this weekend at 6 PM EST with Peter Hegedus, founder of thetraderspath.com !
The Maximum Pain theory in the options market or simply ‘Max pain’ tries to explain that market prices for stocks and commodities will many times settle at the approximate price on the option expiration date where the most option buyers will end up losing the maximum amount of money. The Max Pain is always the …
A market trend is the direction that prices are moving in for a specific timeframe. A market can move in an uptrend, a downtrend, and other times just go sideways inside a price range. Here are simple trend indicators to identify a trend in your trading timeframe. Uptrend indicators: Higher highs and higher lows in …
In trading, a ‘Bull Trap’ is considered a rally in price that creates a false momentum signal to go long because the downtrend looks like it is over and reversing back to an uptrend in price but it is a false signal and the market returns to a downtrend trapping longs who then need to …
In trading and investing, risk management is defined as the process of understanding, identifying, adjusting and managing all of the potential risks that an account is exposed to so the size of losses and drawdowns are minimized for the magnitude of negative impact they will have on a systems risk of ruin and long term profitability. Some examples of possible risks to investment …
This is a video guest post by Jake @TrendSpider.
