Options - Zodiac Trader

Mastering Volatility
Knowing when to hedge/speculate/neutral
Risks Pricing
Option master always know their prices.
Speculating
Long gamma
Hedging
Making the best out of BLACKSWAN EVENTS
Risks Neutral
making time your ally.
Understanding Volatility
Some facets of volatility

There are many ways to look at volatility.

The intuitive meaning of the word is that volatility measures the level of fluctuations for a particular price.
The way we measure it, the unit we use, the time scale at which we are looking all have an impact and should be specified in order to transform a single volatility number into a solid understanding of how much level of fluctuation there is in that particular stock.

By taking a more academic approach based on statistics, one can argue that the value of the stock in one year is uncertain and assign a probability distribution to it. It could be desirable to use the width or standard deviation of this distribution to link to the volatility of the stock. This point of view is exactly what has become the market standard.

It is clear that the statistical approach is focused on the one-year horizon, whereas a trader, who wants to delta-hedge on a daily basis, is not so interested in knowing the uncertainty accumulated over the year. What he is really interested in is understanding how the uncertainty plays a role on a much smaller scale, such that piled up over the year it leads to the same distribution as the statistician has presented.

In mathematical terms, knowing the distribution at one time (or multiple times) is not enough to complete the dynamic picture. One needs to know how the distribution changes over time. Clearly, on a very short time scale, the uncertainty is very small and the distribution function should be sharply peaked about the current level of the stock. As the time horizon increases, the density should widen.

One can show that at any time t, the solution of the Black-Scholes SDE, describing a model for the movement of the stock, is a random variable S(t) that behaves according to a lognormal distribution. So at any time t, we have a density that depends on the original parameters in the equation, being the drift µ and the volatility parameter σ.
In a way, when people use the word volatility, they also agree on the underlying mathematical model!
A higher volatility means more uncertainty about the size of an asset’s fluctuations and, as such, it can be considered a measurement of uncertainty.

Volatility is dynamic and changes a great deal over time. It experiences high and low regimes, but it also has a long-term mean to which it reverts. Also, as a stock market witnesses a large decline, volatility tends to shoot up: we therefore generally see a negative correlation between such assets and their volatilities.
Basic Strategies
Long Call: Buying a call option with the expectation of the underlying asset rising.
Long Put: Buying a put option with the expectation of the underlying asset falling.
Covered Call: Holding the underlying asset and selling a call option.
Protective Put: Holding the underlying asset and buying a put option as insurance.
Cash-Secured Put: Selling a put option while holding enough cash to buy the underlying asset if assigned.

Spread Strategies
Bull Call Spread: Buying a call option and selling another call at a higher strike price.
Bear Put Spread: Buying a put option and selling another put at a lower strike price.
Bull Put Spread: Selling a put option and buying another put at a lower strike price.
Bear Call Spread: Selling a call option and buying another call at a higher strike price.
Calendar Spread (Time Spread): Buying and selling options of the same strike price but different expiration dates.
Diagonal Spread: Buying and selling options with different strike prices and expiration dates.
Ratio Spread: Buying a certain number of options and selling more of the same type.
Backspread: Selling fewer options and buying more of the same type, typically with different strike prices.
Butterfly Spread: Combining two spreads with the same expiration but different strike prices, usually involving four options.
Iron Butterfly: Selling a straddle and buying a strangle with the same expiration date.
Iron Condor: Selling a lower put spread and an upper call spread simultaneously.
Long Straddle: Buying both a call and a put option at the same strike price and expiration date.
Short Straddle: Selling both a call and a put option at the same strike price and expiration date.
Long Strangle: Buying both a call and a put option with different strike prices but the same expiration date.
Short Strangle: Selling both a call and a put option with different strike prices but the same expiration date.

Advanced Strategies
Collar: Holding the underlying asset, buying a protective put, and selling a covered call.
Strap: Buying two call options and one put option with the same strike price and expiration date.
Strip: Buying two put options and one call option with the same strike price and expiration date.
Christmas Tree: A variation of the butterfly spread with more options sold at different strike prices.
Condor Spread: Similar to an iron condor but using either all calls or all puts.
Box Spread: A risk-free arbitrage strategy combining a bull call spread and a bear put spread.
Ratio Call Write: Writing more call options than the underlying assets owned.
Ratio Put Write: Writing more put options than the cash reserved for buying the underlying asset.

Synthetic Positions
Synthetic Long Stock: Buying a call option and selling a put option with the same strike price and expiration date.
Synthetic Short Stock: Buying a put option and selling a call option with the same strike price and expiration date.
Synthetic Long Call: Combining a long stock position with a long put position.
Synthetic Long Put: Combining a short stock position with a long call position.

Complex Strategies
Long Gut: Buying in-the-money call and put options.
Short Gut: Selling in-the-money call and put options.
Jade Lizard: Combining a short put and a short call spread.
Reverse Jade Lizard: Combining a short call and a short put spread.
Ladder Strategy: Buying or selling options at different strike prices, creating a "ladder" effect.
Double Diagonal: A combination of a diagonal call spread and a diagonal put spread.
Unbalanced Iron Condor: An iron condor with different distances between the strike prices.
Unbalanced Butterfly: A butterfly spread with unequal wings, typically involving more contracts on one side.

Other Strategies
Covered Strangle: A combination of a covered call and a cash-secured put.
Covered Ratio Spread: Holding the underlying asset while creating a ratio spread.
Diagonal Condor: A condor spread using options with different expiration dates.
Diagonal Iron Condor: An iron condor spread using options with different expiration dates.
Reverse Iron Condor: Buying a lower put spread and an upper call spread simultaneously.
Broken Wing Butterfly: A butterfly spread with one wing wider than the other.
Double Calendar Spread: Combining a calendar spread with both calls and puts.
Double Diagonal Spread: Combining a diagonal call spread and a diagonal put spread.
Ratio Call Spread: Buying and selling calls in different ratios.
Ratio Put Spread: Buying and selling puts in different ratios.

Options Greek Dynamics

Options trading has become increasingly popular in recent years as it offers investors an opportunity to profit from market movements without actually owning the underlying asset. However, trading options can be complex and requires an understanding of various option pricing factors, including the Greeks. In this article, we will explore the five main Greeks used in options trading and introduce higher-order Greeks that can be used to fine-tune trading strategies.

What are the Greeks?
The Greeks are measures of the sensitivity of an option's price to changes in various factors, such as the underlying asset price, time, volatility, and interest rates. They are used to help traders assess risk and develop trading strategies. There are five primary Greeks: Delta, Gamma, Theta, Vega, and Rho.

Delta
Delta measures the sensitivity of an option's price to changes in the underlying asset price. It ranges from 0 to 1 for calls and -1 to 0 for puts, with an at-the-money option having a delta of approximately 0.5. A delta of 0.5 means that the option price will increase by $0.50 for every $1 increase in the underlying asset price, and vice versa for a decrease in price. The delta also reflects the probability that the option will expire in-the-money.

Gamma
Gamma measures the sensitivity of an option's delta to changes in the underlying asset price. It is highest for at-the-money options and decreases as the option moves further in- or out-of-the-money. A high gamma means that the delta of the option can change rapidly, which can be either good or bad depending on market conditions.

Theta
Theta measures the sensitivity of an option's price to changes in time. It is negative for both calls and puts, indicating that the option's price decreases as the time to expiration decreases. Theta increases as the option gets closer to expiration, reflecting the time decay of the option's value. This is particularly important for traders who sell options, as they are effectively selling time.

Vega
Vega measures the sensitivity of an option's price to changes in implied volatility. It is positive for both calls and puts, indicating that the option's price increases as implied volatility increases. This is because higher volatility increases the probability of the option expiring in-the-money. Vega is also highest for at-the-money options and decreases as the option moves further in- or out-of-the-money.

Rho
Rho measures the sensitivity of an option's price to changes in interest rates. It is positive for calls and negative for puts, indicating that the option's price increases as interest rates increase for calls and decreases for puts. Rho is typically less important for traders than the other Greeks, as interest rate changes are usually small and infrequent.

Higher-order Greeks
Higher-order Greeks are more complex measures that are used to fine-tune trading strategies. They include Charm, Vanna, Vomma, Ultima, and Speed.

Charm
Charm measures the sensitivity of an option's delta to changes in time. It is a second-order Greek, meaning it measures the rate of change of delta with respect to time. Charm is particularly important for traders who hold options near expiration, as it reflects the accelerated rate of time decay in the final days of an option's life.

Vanna
Vanna measures the sensitivity of an option's delta to changes in implied volatility. It is a second-order Greek, meaning it measures the rate of change of delta with respect to implied volatility. Vanna is particularly important for traders who hold options with longer expiration dates, as it reflects the impact of changes in volatility over time.

Vomma
Vomma measures the sensitivity of an option's vega to changes in implied volatility. It is a second-order Greek, meaning it measures the rate of change of vega with respect to changes in implied volatility. Vomma is important for traders who are trying to predict future changes in implied volatility, as it can help them adjust their positions accordingly.

Ultima
Ultima measures the sensitivity of an option's vega to changes in the underlying asset price. It is a third-order Greek, meaning it measures the rate of change of vega with respect to changes in the underlying asset price. Ultima is important for traders who are trying to anticipate extreme market events, as it reflects the impact of changes in volatility and time decay during such events.

Speed
Speed measures the sensitivity of an option's gamma to changes in the underlying asset price. It is a third-order Greek, meaning it measures the rate of change of gamma with respect to changes in the underlying asset price. Speed is important for traders who are trying to anticipate sudden market movements, as it reflects the rapid changes in delta that can occur during such movements.

The Greeks are essential tools for options traders, as they provide insight into the various factors that can affect an option's price. Delta, Gamma, Theta, Vega, and Rho are the primary Greeks that traders should be familiar with, while higher-order Greeks such as Charm, Vanna, Vomma, Ultima, and Speed can be used to fine-tune trading strategies. By understanding the Greeks and their applications, traders can make informed decisions and manage risk effectively.
Technical Indicators

Here are 10 commonly used technical indicators and technical analysis skills when trading stocks,for more info you can unlock them via purchase our trading course/memberships:

1. Moving averages:
This is one of the most basic technical indicators. It helps traders to identify trends in the price of a stock by smoothing out the fluctuations in the price over a given period of time.

2. Relative strength index (RSI):
This is another popular technical indicator that is used to determine whether a stock is overbought or oversold. It compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions.

3. Bollinger Bands:
This technical indicator consists of a set of three lines that are plotted on top of the price of a stock. It is used to determine the volatility of a stock and to identify potential price breakouts.

4. Moving average convergence divergence (MACD):
This is a popular technical indicator that is used to identify changes in momentum. It consists of two moving averages that oscillate around a zero line.

5. Fibonacci retracements:
This technical analysis skill involves using Fibonacci ratios to identify potential levels of support and resistance in a stock's price.

6. Candlestick charts:
This type of charting is used to identify price patterns in a stock's price. It is based on the premise that the price action of a stock can be predicted by studying the shapes of candlesticks.

7. Stochastic oscillator:
This is a momentum indicator that compares the closing price of a stock to its price range over a given period of time.

8. Average directional index (ADX):
This technical indicator is used to determine the strength of a trend in a stock's price.

9. Relative volatility index (RVI):
This technical indicator is used to measure the direction and magnitude of a stock's volatility.

10. Ichimoku cloud:
This is a technical indicator that is used to identify potential levels of support and resistance in a stock's price. It is based on five different lines that are plotted on top of the price of a stock.
Useful links
1. Yahoo finance
2. Barron's
3. Bloomberg
4. Economist
5. Macro Tourists
6.Seeking Alpha
7. Quantopian
8.Zerohedge...

主頁

Mastering Volatility

Knowing when to hedge/speculate/neutral

Risks Pricing

Speculating

Hedging

Risks Neutral

Understanding Volatility

Some facets of volatility

Basic Strategies

Long Call: Buying a call option with the expectation of the underlying asset rising.

Long Put: Buying a put option with the expectation of the underlying asset falling.

Covered Call: Holding the underlying asset and selling a call option.

Protective Put: Holding the underlying asset and buying a put option as insurance.

Cash-Secured Put: Selling a put option while holding enough cash to buy the underlying asset if assigned.

Spread Strategies

Bull Call Spread: Buying a call option and selling another call at a higher strike price.

Bear Put Spread: Buying a put option and selling another put at a lower strike price.

Bull Put Spread: Selling a put option and buying another put at a lower strike price.

Bear Call Spread: Selling a call option and buying another call at a higher strike price.

Calendar Spread (Time Spread): Buying and selling options of the same strike price but different expiration dates.

Diagonal Spread: Buying and selling options with different strike prices and expiration dates.

Ratio Spread: Buying a certain number of options and selling more of the same type.

Backspread: Selling fewer options and buying more of the same type, typically with different strike prices.

Butterfly Spread: Combining two spreads with the same expiration but different strike prices, usually involving four options.

Iron Butterfly: Selling a straddle and buying a strangle with the same expiration date.

Iron Condor: Selling a lower put spread and an upper call spread simultaneously.

Long Straddle: Buying both a call and a put option at the same strike price and expiration date.

Short Straddle: Selling both a call and a put option at the same strike price and expiration date.

Long Strangle: Buying both a call and a put option with different strike prices but the same expiration date.

Short Strangle: Selling both a call and a put option with different strike prices but the same expiration date.

Advanced Strategies

Collar: Holding the underlying asset, buying a protective put, and selling a covered call.

Strap: Buying two call options and one put option with the same strike price and expiration date.

Strip: Buying two put options and one call option with the same strike price and expiration date.

Christmas Tree: A variation of the butterfly spread with more options sold at different strike prices.

Condor Spread: Similar to an iron condor but using either all calls or all puts.

Box Spread: A risk-free arbitrage strategy combining a bull call spread and a bear put spread.

Ratio Call Write: Writing more call options than the underlying assets owned.

Ratio Put Write: Writing more put options than the cash reserved for buying the underlying asset.

Synthetic Positions

Synthetic Long Stock: Buying a call option and selling a put option with the same strike price and expiration date.

Synthetic Short Stock: Buying a put option and selling a call option with the same strike price and expiration date.

Synthetic Long Call: Combining a long stock position with a long put position.

Synthetic Long Put: Combining a short stock position with a long call position.

Complex Strategies

Long Gut: Buying in-the-money call and put options.

Short Gut: Selling in-the-money call and put options.

Jade Lizard: Combining a short put and a short call spread.

Reverse Jade Lizard: Combining a short call and a short put spread.

Ladder Strategy: Buying or selling options at different strike prices, creating a "ladder" effect.

Double Diagonal: A combination of a diagonal call spread and a diagonal put spread.

Unbalanced Iron Condor: An iron condor with different distances between the strike prices.

Unbalanced Butterfly: A butterfly spread with unequal wings, typically involving more contracts on one side.

Other Strategies

Covered Strangle: A combination of a covered call and a cash-secured put.

Covered Ratio Spread: Holding the underlying asset while creating a ratio spread.

Diagonal Condor: A condor spread using options with different expiration dates.

Diagonal Iron Condor: An iron condor spread using options with different expiration dates.

Reverse Iron Condor: Buying a lower put spread and an upper call spread simultaneously.

Broken Wing Butterfly: A butterfly spread with one wing wider than the other.

Double Calendar Spread: Combining a calendar spread with both calls and puts.

Double Diagonal Spread: Combining a diagonal call spread and a diagonal put spread.

Ratio Call Spread: Buying and selling calls in different ratios.

Ratio Put Spread: Buying and selling puts in different ratios.

Options Greek Dynamics

What are the Greeks?

Delta

Gamma

Theta

Vega

Rho

Higher-order Greeks

Charm

Vanna

Vomma

Ultima

Speed

Technical Indicators

1. Moving averages:

This is one of the most basic technical indicators. It helps traders to identify trends in the price of a stock by smoothing out the fluctuations in the price over a given period of time.