Technical Analysis and Options

Technical Analysis And Option Trading

Technical analysis: the hocus-pocus voodoo child of the stock market. Most people will lump technical analysis in with reading tea leaves, moon phases, and astrological signs. It is nothing more than a made-up science made successful by luck, that is what they say. But are “they”, right? Even with the rise of machines, the stock market is still heavily traded by humans, and with that comes the baggage of human emotion. Greed and fear run rampant through the stock market, affecting every… Read More
Learn About Paper Trading

Truth About Paper Trading

Simply defined, “Paper trading is a simulated trading process in which would be investors can ‘practice’ investing without committing real money.” Most brokerages offer a form of paper trading, or stock market simulator, so you can practice trading and learn on their platform. Having a place to practice new strategies, learn new methods of trading, and learn a brokerage’s systems before putting real money on the line is very beneficial. There are, however, a few setbacks when relying on paper… Read More
Iron Condor Option Strategy

Why Iron Condors Are The Worst Option Strategy

The title of “worst” may be a bit harsh, but it is well deserved. A lot of option traders see the iron condor as the holy grail of option strategies. I mean, who could blame them? How many option strategies offer twice the return for low margin, give you limited risk, and allow you to profit over a broad range of prices? Few strategies fit that bill. Spiderman said it best, “With great power comes great responsibility.” It is true that the iron condor wields a lot of power, but it is the lack… Read More
option trading alert service

Option Newsletters: How To Pick The Best Service For You

Stock trading newsletters plague the internet. Anyone who has a hint of trading experience wants to sell you their stock picks. Any why not? It is easy to set up a website, collect your money via PayPal, and send you an email when it is time to make a trade. If they make you money, great! If not, oops... Once they lose enough, they shut it down, and start it back up with a new name and website. If I had a dollar for every website that promoted getting rich quick, I would be rich. Trading… Read More
how to deal with taxes on option trades

Options And Taxes - What You Should Know

Death and taxes. The only two certainties in life. Trying to understand thousands of pages of the tax code can be a daunting tax. As traders, we are constantly bombarded with irregular forms of income. Deciphering this income in your tax documents can be complicated and often confusing. To make sure you don’t dread tax time, you are going to learn common terms to help you navigate through the requirements, if you should declare that you are a trader or investor, if you should trade as a… Read More
How to become a full time option trader

How To Trade Options Full-Time

Trading is one of the few career choices on which you can spend your time on and make no money or even lose money. You’ve seen the movies, the Instagram pictures, and the greats living the fabulous life as a full-time trader. They drive around in their Lamborghinis and Ferraris while you slave away at your 9-5 job. They make videos showing off their mansions and colossal computer setups with ten screens. It is a sight for sure. Who wouldn’t want to live that life? Before you quit your 9-5 job,… Read More
using cash secured puts to pick up stock

Using Cash Secured Puts To Pick Up Stock

Make money while you wait and do nothing. That’s a good life. A cash-secured put is a conservative technique that is best utilized to get paid to pick up stock at a lower price.Have you ever wanted to purchase a stock at a lower price? Instead of just waiting for the stock to move lower you can sell a cash-secured put to make that happen. Cash-secured puts are merely, short puts with the intent of purchasing the stock at the strike price.We need an example to help explain. The Option Prophet is… Read More
option risks

The Real Risk Trading Options

We’ve all been there. As soon as you open your first option brokerage account, you are hit with the big option risk book. Yes, we are referring to “Characteristics and Risk of Standardized Options.” Every broker will send this out to new option accounts. The hope is that this booklet will act as a disclosure and shed light on the real risks in options trading. To this day, I’ve never met anyone that has read this book. Who would? It is a 200-page pamphlet filled with topics such as Foreign… Read More
trading margin and portfolio margin

All About Trading Margin

Trading Margin is a fancy word for – loan from your brokerage. Most people associate loans with debt and therefore want no part of it. But, there is an advantage to use margin versus a cash account, even if you don’t want the extra money. Some trades can only be traded on margin accounts, without margin you miss out on a wide variety of option strategies. This can’t be. Margin also allows you to avoid the delay in trade settlements, which means you can trade faster instead of having your money… Read More
make money trading covered calls

How To Make Money With Covered Calls

How can you turn your otherwise lifeless stock positions into income generating machines? Covered calls. You are probably holding a bunch of stock that hasn’t done anything for you. If the company isn’t paying a dividend, you are only racking up unrealized gains, or worse, losses. Unfortunately, holding stock doesn’t do anything for your portfolio until you sell it. Covered calls give us a way to generate a consistent income from the stock that we are already holding. By learning how to… Read More
learn about option trading levels

What You Should Know About Option Trading Levels

One of the most overlooked aspects of options trading is option approval levels. When you start trading options, you can’t go and execute any trade you want. Brokerages have put safeguards in place to protect you from yourself.These safeguards can be frustrating if you are an experienced options trader who wants to get started trading right away. However, these safeguards do perform as advertised. They keep new traders from blowing out their portfolio because they clicked a wrong button. Don’t… Read More
sell to close buy to close and exercise options

What Buy to Close, Sell to Close, and Exercise Options Mean

You did it! You placed a new option position, and you finally see some profit. But before you break out the bubbly and party streamers, you need first to close the position and lock in that profit. You fire up your brokerage account, switch over to the order page, and freeze... Was the order you need, sell to close? Buy to close? Or, maybe it was exercising the position? When you first learn options, you always hear about exercising your options. After all, that is what strike price is all… Read More
trade journal how to make money

How To Make Money With A Trade Journal

“Don’t trust your memory, jot it all down,” Earl Schoaff. You will never fix your mistakes until you learn what they are. Success in trading requires planning, execution, and review. Today we focus on review. Reviewing your work as a trader will allow you to enhance and develop your strategies and trading systems. It will also let you to recognize your faults and correct your mistakes. What does a quarterback do on Monday? He ices down his arm and watches the tape of yesterday’s game. He is… Read More
Trading Options As A Professional Review 2

Trading Options As A Professional - Book Review

As a professional. Words like that carry a strong connotation with them. I know what you are thinking, I’m not a professional, I am just trying to keep my head above water when I trade options. Don’t fear, “as a professional” may be written on the cover of James Bittman’s Trading Options as a Professional, but it is a perfect read no matter which level of options trading you are at. As an options trader, you must continue to learn and perfect the various topics of options trading. Once mastered… Read More
pitfalls of backtesting

5 Common Mistakes You Make Backtesting Trading Strategies

"I only believe in the backtests that I doctored myself." -Winston Churchill Backtest a simulation that seeks to estimate the future performance of an investment strategy by testing its performance in the past. Because who wouldn't want to test out their new options strategy over the last 100 years to see if it makes money before putting up actual cash? Backtesting can be a great way to test your strategies to see how they perform during various types of markets and conditions. How does your… Read More
Generate consistant option income

Generate Income Using The Wheel Trade

When dealing with short-term price fluctuations or the lack thereof, the use of options is a grand strategy. When you are more of a long-term investor, the use of options finds less of a place in your trading. There are LEAPS (Long-Term Equity Anticipation Security) are options that have longer maturities than your standard options. LEAPS trade like a standard option but have maturities out to three-years. These options can be used by the longer term investor who thinks the price may rise… Read More
learn to read an option profit and loss graph

Learn To Read An Option Profit And Loss Graph

Even the most straightforward option, a long call, can be challenging to visualize and manage. Trying to keep a portfolio full of iron condors, long puts, bear call spreads, etc. without any help is a daunting task. Then, if you try to manage one of those positions by adjusting, you would be truly lost without some visual representation of what is happening. An option's profit and loss graph, also known as risk graph, takes these very complex strategies and gives you a simple representation of… Read More
mistakes made shorting options

5 Mistakes You Make Shorting Options

Short option trading often gets a very bad rap. The critics always come out and say that you are trading a limited reward unlimited risk strategy and that sooner or later you're going to lose and give back all your gains, or worse blowout your portfolio. These critics are not completely wrong because traders continue to make the same mistakes that end up proving them right. If you want to be a successful trader in the long term you have to stock making these mistakes. Is your only adjustment… Read More
how to trade long and short straddles

How To Trade Long And Short Straddles

Only in options can you take a neutral position that pays off if the underlying moves up or down. Only in options can you make a neutral position that pays off if the underlying doesn't move at all. These are the reasons we love to trade options. An endless combination of strategies can be deployed to reach your desired effect. The straddle is an easy position to use, but it can be difficult to profit from unless you stack the odds in your favor. Not only will we teach you how to do that but we… Read More
3 steps to pick an option strategy

3 Steps To Pick The Perfect Option Strategy

Why isn't trading options like trading stock? You think the stock will go up in price, so you buy it and wait, or you think the stock is going to drop like a rock, so you short it and rack up the dough. With options, you have 40 different options strategies to pick from, and that is just the start. After you finally choose the perfect strategy you then have to decide on the right strikes and expiration. This can be a tedious process which can make or break your whole position. For now, we want… Read More
how to protect your portfolio

How To Protect Your Portfolio From A Market Crash

There are two main parts to every trade. The first is setting up and placing the trade, and the second part is to manage that position once it has been placed. Far too many traders emphasize the first part and disregard the second part completely. When, in fact, to be successful in this industry it is far more essential to be able to manage your positions. When dealing with options, there are many ways to manage positions. Managing winners can be as difficult if not more difficult than managing… Read More
learn volatility skew

What Is Volatility Skew And How To Use It In Option Trading

After the market crash of 1987 investors realized that the market could crash at any time. "A Black Swan event is an event in human history that was unprecedented and unexpected at the point in time it occurred." The crash made investors rush out and protect their portfolios through option insurance. This new demand shook the options market into what we see today. One of the things that spawned off this action is the forming of volatility skew. Volatility skew also known as volatility smile is… Read More
how to get started in options

How To Get Started Trading Options

Starting off in options can be difficult. There are a lot of moving parts happening within options, and there is an abundance of information readily available. The problem is it is often difficult to figure out what information to trust and what information you should begin at. Your first step will be to get a couple of resource books. Once you have an idea of what is going on you need a place to trade so finding a broker is a must. The last step is finding a good mentor. Mentors are great to… Read More
guide to option volume and open interest

Guide To Option Volume, Open Interest And Pin Risk

Tracking stock volume and options volume are two entirely different monkeys, and particular attention needs to be paid to option volume and open interest. When a company releases stock on the market for the first time (initial public offering) it sets the number of shares it wants to release: Ferrari SpA (NYSE: RACE) stock starts trading on Wednesday, Oct. 21. The Ferrari IPO plans to raise $860 million by selling 17.2 million shares at a $48 to $52 price range. The take away when dealing with… Read More
The Difference Between Option Exercise and Assignment

What Is Option Exercise And Assignment

Option exercise and assignment are two fundamental principals of options trading but can be very confusing to a new options trader. We quickly understand some parts of options because we can find similarities from our history of stock trading. Unfortunately, exercise and assignment are not one of those similarities. Unlike with straight stock trading, there are many different ways to close out an option. Some of these ways are dependent on if you are long or short or what your trading goals… Read More
What is the vix

A VIX (Fear Index) Primer

The VIX, also known as the 'Fear Index,' is the symbol for the Chicago Board of Options Exchange's (CBOE) Volatility Index. Aside from the actual market indexes (Dow Jones, S&P 500, Russell 2000 and Nasdaq) the VIX probably ranks second for most watch index by investors. Its movement is used to judge how much fear is priced into the market. Since most traders do not fear a market move to the upside the fear is all towards the downside and how much further the market will move lower. Volatility… Read More
why do we use vertical spreads

How To Trade Vertical Spreads

One of the most basic spreads to run with options is a vertical spread. A vertical spread is comprised of two options: a long option and a short option on the same underlying and expiration. We can configure your long option and short option into four different combinations: bull call spread, bear call spread, bull put spread and a bear put spread. We will go through each of these spreads and discuss how and when we use them. We will also focus on strike and expiration selection which can be… Read More
how to adjust an iron condor

6 Ways To Adjust An Iron Condor

When you have a neutral outlook on a stock (not bullish or bearish), you can use an iron condor to extract profit from the lack of movement. We've already covered the basics of how and when to setup an iron condor so now we are going to move to a more advanced topic: adjustments. Iron condors are high probability trades, meaning they have a high probability of success. The higher the probability of success the lower return we can expect. Most traders are okay with this trade-off. The more you… Read More
implied historical and expected volatility

Option Volatility: Historical, Implied and Expected

"Option traders must have an even greater focus on volatility, as it plays a much bigger role in their profitability--or lack thereof" Dan Passarelli. Here is the story we hear from most new traders, "I bought a call on XYZ, and then XYZ moved up in price, but my call lost money. I don't understand, what went wrong?" Most beginning options traders will find themselves in this situation at some point, and the answer is always the same, "volatility dropped." The role volatility plays in an… Read More
7 factors that affect option price

7 Factors That Affect An Option's Price

You can't know where you are going until you know where you've been. You can't price an option until you know what makes up its value. An options trade can become a complex machine of legs, multiple orders, adjustments, and Greeks, but if you don't know the fundamentals then what are you trying to accomplish? When you look at an option chain have you ever wondered how they generated all those prices for the options? These options are not created by random but instead calculated out using a… Read More
Top 5 Option Trading Books

Top 5 Option Trading Books (Plus A Bonus Book)

When we first started learning options we took what we define as the normal learning path. We started with a simple Google search on options trading and began to read....and read......and read. While we picked up a lot of great information it was only in small bits and pieces and it was very random. The great part about the web is that you can find information on any subject at the touch of a button. The bad part is that it is only on a certain segment in that subject and not the big picture.… Read More
The Complete Guide On Option Vega

The Complete Guide On Option Vega

If implied volatility changes, how much do I make or lose? We can answer that question when we examine Vega. Ironically, Vega is not an actual Greek letter, so sometimes it is referred to as kappa. Vega is the measure of the movement of an option’s price affected by implied volatility. Before you learn how Vega moves in accordance with time, strike price, and volatility, you need to understand what implied volatility is. Once we have put together the necessary pieces for Vega, we will show you… Read More
The Complete Guide On Option Rho

The Complete Guide On Option Rho

The red-headed stepchild, the forgotten Brady – yes, we are talking about Rho. Rho is the one Greek that does not get mentioned with the others, which is not entirely its fault. Rho is the measure of the effect of interest rates on an option's price. Unfortunately for Rho, interest rates do not change that often. When you trade short-term options, the effect of interest rates is felt even less. However, to get a complete understanding of the Greeks and how they affect your option’s price, you… Read More
The Complete Guide On Option Theta

The Complete Guide On Option Theta

Tempus Fugit - Time Flies. An understatement if I have ever heard one. Time moves in a smooth and continuous flow out of the past through the present and into the future. Options, by their nature, have a limited existence. The contracts have a beginning and a very definitive end at their expiration date. This move towards expiration can affect an option's price adversely, as it will have little time left before the contract disappears. Option Theta is how we measure the affect time has on an… Read More
The Complete Guide On Option Gamma

The Complete Guide On Option Gamma

Diving deeper into the Greeks, we explore a Greek that doesn't measure the movement in an option's price, but the movement in another Greek. In our Complete Guide To Option Delta, we noted that Delta is not a static number, but a number that is constantly changing. To measure that change, we use our Greek Gamma. This is where you will learn that not all deltas are created equal. Two options may have the same deltas, but different gammas and different directional risk. We will explore Gamma; what… Read More
The Complete Guide On Option Delta

The Complete Guide On Option Delta

Options are derivatives, meaning they derive their value from the underlying asset. The underlying is usually stock but can be currency, futures or commodities. These derivatives are contracts created every day and cease to exist on their expiration. This leads to characteristics that are fundamentally different than trading straight stock. One of those different characteristics is how option prices react to movement in the underlying (Delta), time (theta), volatility (vega), and interest rates… Read More
the best option play for earnings

The Best Option Play For Earnings

When a company releases earnings, they provide the most recent financial performance and also give a guidance for the next quarter's performance. A company's earnings can be a very volatile and profitable time if you use the right options strategy. Unfortunately, most traders are taught to use the wrong option strategy and end up blowing out their account. We want to make sure this doesn't happen to you so we will show you what happens in the options markets when a company reports earnings,… Read More
top 5 brokerages for option trading

Top 5 Brokerages For Option Trading

Choosing the right brokerage is an essential first step in trading. When you are an options trader, extra special attention needs to be paid to your brokerage selection. With options the trades can become quite complicated and quite expensive, so finding a broker that can cater to your needs is a must. A lousy broker can put you in a position to lose instead of setting you up for success by stacking the odds against you. As we've been in the game for many years, we've had our experiences with… Read More
top 8 option trading mistakes and how to fix them

Top 8 Option Trading Mistakes And How To Fix Them

1. Buying Out-of-the-Money Options The Problem:A lot of new traders like to start out by buying near term out of the money options. Why? They are the cheapest so it seems like a great idea at the time. The problem is that these options are cheap for a reason. They have a small probability of finishing in the money so they are not going to be worth anything to begin with. Think of these options as lottery tickets. You will have to buy lots of them just to get one to pay off and break even. When… Read More
how to enter trade and close an iron condor option position

How To Trade And Adjust An Iron Condor

Ever wondered how to make money in any market condition? How about how to profit on a stock that doesn't move? How about how to trade an iron condor? A stocks movement can be classified into three distinct cycles. The first cycle, and everyone's favorite, accumulation. Accumulation is when the stock is being picked up by buyers, who outweigh the sellers. This creates an uptrend in the stock which is pretty easy to trade. You can buy the stock, buy a call, short a put, etc. to profit from an… Read More

round testimonial

"Last year The Option Prophet absolutely transformed my trading account from one where monthly gains were often uncertain and unpredictable into one where a steady monthly income stream through OTM credit spreads bought amazingly steady and consistent growth."

-Andrew B.