jOption Trading
Understanding Volatility
Why do professional option trading companies tend to generate more constant returns compared to retail investors? And why do retail investors usually lose? Option trading is a zero sum game, so where does this discrepancy come from. The answer is volatility. Professional traders have a deep understanding about volatility. The price of a call- or put option is dependent on several variables like; the price of the underlying stock or index, the strike, the time to expiration, the interest rate and volatility.
Understanding volatility is important to become a good option trader. Most retail investors I've met in my life use options as a leveraged directional instrument. That is, an instrument to speculate on the direction of the underlying stock or index. If you ever traded options, you might remember the frustration that even when you got the direction right, you still lost money on your options.
That's why professional option traders don't pick a direction. They trade delta neutral (no favor in underlying market direction). When you create a delta neutral position with options you trade volatility. That is the key difference. Mastering this concept takes some time, but it is not extremely difficult per se. In my book "Option Trading and its Applications" I explain everything there is to know to master these concepts.
The topics discussed are: pricing options, volatility, the Black-Scholes-Merton model, option greeks (delta, gamma, theta, vega, rho, vanna and charm), hedging, arbitrage, skew, delta neutral trading, option strategies, spreads, expiration and position management to name a few.
After reading my book, I am confident that you will be able to become a better option trader and compete against the best market professionals. The book is available in Dutch and English and can be purchased using by clicking the book picture. Good luck!
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Options are complex financial instruments. Your capital is at risk.
Turbo’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 74% van de retailbeleggers lijdt verlies op de handel in turbo’s met deze aanbieder. Het is belangrijk dat u goed begrijpt hoe turbo’s werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
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