OptionsTrading

StrategiesforaVolatileMarket

FiveSimpleOptionsTrading

StrategiesforConsistentProfitsina

VolatileMarket

TableOfContents

Introduction

Chapter1–Overview

Chapter2–BasicsofVolatileOptionStrategies

Chapter3–AccountTradingLevels

Chapter4–LongStraddle

Chapter5–StrapStraddle

Chapter6–LongStrangle

Chapter7–StripStrangle

Chapter8–TheLongGut

Chapter9–FinalNotes

Conclusion

IntroductionI want to thank you verymuch and congratulate youfor downloading the book,Options Trading Strategiesfor a Volatile Market–FiveSimple Options TradingStrategies for ConsistentProfitsinaVolatileMarket

The goal of this book is tohelp people who are already

familiar with optionterminologyandthebasicsofhow the options marketworks.

In this book, you’ll discoverthe five best options tradingstrategies for a volatilemarket. For each strategy,you’lllearnhowitworks,thebest times to use it, the riskand reward dynamics, andyou’ll be taken step-by-stepthroughcompleteexamples.

Thanks again fordownloading this book, Ihopeyouenjoyit!

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RiskDisclaimer

Trading in any financialmarket involves substantialriskoflossandisnotsuitableforallinvestors.Anystyleof

trading in any marketcondition is extremely riskyand can result in substantialfinancial losses in a veryshortperiodoftime.Thereisconsiderable exposure to riskin any transaction includingbut not limited to, thepotential for changingpolitical and/or economicconditions that maysubstantially affect the priceorliquidityofatrade.

Trading is a challenging andpotentially profitableopportunityforthosewhoareeducated and experienced intrading. Before deciding toparticipate in the markets,youshouldcarefullyconsideryour objectives, level ofexperience and risk appetite.Most importantly, do NOTinvest money you cannotafford to lose. Objective,experience, risk of loss,leverage, creditworthiness,

limited regulatory protection,market volatility that maysubstantially affect the priceor liquidity of a trade,communication failure, etc.could put you at risk for theloss of some or all of yourcapital and/or assets. Thepossibility exists that youcould sustain a total loss ofinitial funds and be requiredtodepositadditional funds tomaintainyourposition.

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Chapter 1 –Overview

This guide is to help peoplewhoarealreadyfamiliarwithoption terminology and thebasics of how the optionsmarketwork.Itisdesignedtogive you an overview of themain strategies for usingoptions when the marketconditionsarevolatile.

Making money in a volatilemarket is risky as a volatilemarketmeans thatpricescanrise and fall dramatically.This is significantly differenttoabearishorbullishmarketas your strategies have to beable to profit when the priceoftheunderlyingassetmovesby a significant amount ineither direction, and not justinone.

The reason that options are

held in such high regard byprofessional traders is thatyoucansetupstrategies thatallow you to make a profitregardless of whether theprice of the underlying assetmovesupordown,aslongasit does so by a significantamount. Large pricemovements are not the onlykind of volatility that youneedtoconsiderwhentalkingabout a volatile optionmarketsthough.

As an experienced optiontrader you should already befamiliarwith theGreeks,andknowthattheVegashowstheimpliedvolatilityofanoptioncontract. A change inimplied volatility can have adramaticeffectonthecostorpremium of the option, andyoualwaysneed tobeawareof implied volatility for thisreason. Therefore a volatileoption market can be whenprices jump quickly or when

the implied volatility isincreasing.

It is important to note thatalthough implied volatilityshouldincreasewhenthereisamajor news event affectingthe underlying asset, anddecrease when the market isquiet. It is possible forimplied volatility to changewithout any obvious reason.This is due to a shift in themarketperceptionofwhatthe

implied volatility should be,rather than from any factualcause. Impliedvolatilitywillincrease with demand for aparticular option, anddecreaseifdemandislow.

Chapter2–BasicsofVolatile OptionStrategies

The basic theory behindconstructing an effectivestrategy for a volatilemarketis to take advantage of duo-directional profits. What thismean in its simplest form isthat you are setting up

positions thataremadeupoftwoparts.Thefirstpartistoset up a trade that will gainmore than it will lose whenthe price of the underlyingassets rises, and the secondpart does the opposite. Thismeans that it will gain morefrom the rapid decline in thevalueofanoptionthanitwilllose.

Thesimplestversionofthisisto use a combination of long

calls and long puts in thehope that the change in theprice of the option due tohigh volatility will push oneof these two trades intoenough profit to cover thecostoftheonethatisgoingtobe out of the money. Morecomplex strategies forvolatile markets work bycombiningbullishandbearishoptionstrategiesinawaythatwill accomplish much thesamething.Whensettingup

a volatile option strategy thething that you want to lookfor is a high Gamma valuewith a neutral or almostneutralDeltavalue.

A good time to implement avolatile option strategy iswhen there is a potentialincrease in the impliedvolatilityonthemarket,evenif the prices have not yetstartedtomove.Thiswillsetyou up for success at the

lowestpossiblecost,andwilloccur when the strategy thatyou are consideringimplementing has a positiveVegavalue. Just byhavingapositive Vega value ifeverything else stays thesame, the position you haveselectedshouldmakeaprofit.

Evaluate your volatile optionstrategies in periods beforeearnings release statements,or other key financial

informationaboutacompanyor the market as a whole.Volatility across the markettendstoincreaseduringtheseperiods. As soon as you seethat implied volatility hasstopped increasing and hasreached its peak, then youshould close the strategy.There is a volatilitymeasurement index calledVIX that a lot of traders usetotrackimpliedvolatilityanddecide when volatility is

increasingorhaspeaked.

Chapter 3 –AccountTradingLevels

If is important to understandtheaccounttradinglevelsthatapply for option tradingaccounts. Some of thestrategiesinthisguiderequirehigher trading levels thanothers. Often referred to asyour ‘trading’ or ‘approval’level, it issetbyyourbroker

basedonyournetworth,andyour level of experience intradingoptions.

Inmostcases,whenyoufirstopen an option account youwill be given a level of 1.Youwill need a higher levelthan that to implement thetrading strategies in thisguide,soyouneedtocontactyourbrokeranddiscusswhatyou are looking to do, andwhat he needs from you in

order toget theapprovalyouneed.

Level 1 allows you to tradecovered calls and protectedputs. This means that youneed to own the underlyingassetandisnotmuchusefortrading options. At level 2you are able to buy call andputoptions.Youarenotableto use debit spread strategiesuntil your approval level hasreached level 3. You cannot

utilizecreditoptionstrategiesyet, as this is at level 4.Level4willalsoallowyoutotradeshortbutterflyspreads.

The reason that the approvallevel is so high is that creditstrategies are complex andrequirea lotofexperience toknow exactly what yourprofitor losscanbe.Level5is the highest level andusually reserved forinstitutional traders as you

canwritecallandputoptionswithout owning theunderlying asset. This isextremely dangerous as youare exposed to a very highrisk.

Chapter 4 – LongStraddle

This is one of the moststraightforward of all of thevolatileoptionstrategies,andallows you to make a profitwhether the value of youroption contracts increases ordecreases, as long as it doesso significantly. Thismeansthatthebesttimetoemploya

Long Straddle is when youexpect the value of anunderlying asset to suddenlymoveeitherupordownveryquickly. The usual reasonwhy the value of anunderlying asset will do thisisoftenamajornewsevent.

Setting up a long straddle isvery simple and can beexecutedveryquickly. Whatyou need to do is to executeanatthemoneycallandanat

the money put at the sametime,forthesameunderlyingasset, expiring at the sametime, andas far awayasyoucan get. The potential profitisunlimitedasifthevalueofthe underlying asst risessharply,thenyouwillmakeaprofitonthecalllessthecostof the two premiums.Similarly if the value of theunderlying asset sharplydropsinvalueyouwillmakeunlimited potential profit on

the put that you purchased,less the cost of the twopremiums.

Example

Anexamplewould be if youexpected the price of ABCCompany is going tosuddenly move significantlybutareunsurewhetheritwillbeupordownandthecurrentvalue of the stock is at $25.Youwouldwanttobuyacalloption with a strike price ofas close to $25 as you canfind,andaputoptionwiththe

same strike price. If youthink themovement is goingto occur within the nextmonth then you would buybothoftheseoptionswiththesame expiry and at least onemonthtoleft.

Assuming the premium oneach at the money option isapproximately the same, say$1forthisexample,thenyourtotal cost to set up this tradewill be $1 + $1 = $2 times

100 shares in the optioncontract so $200. If you arecorrect and ABC companygetsgreatnewsand thepricerisesfrom$25ashareto$30ashare,thenyouwillmakeaprofit of $5 * 100 shares =$500lessthepremiumcostof$200=$300.Ifthepricehaddropped by the same amountfrom $25 to $20 then yourprofitwouldbethesame.

Inadditiontothesetwoprofit

alternative there is a thirdone, where the impliedvolatility of the underlyingasset rises, while you areholding the twooptionseventhough the price of theunderlying asset does notchange,thenthevalueofbothof your option positions willstillrise,andyouwillmakeaprofitifyouclosethemwhenthe implied volatility peaks.If none of these situationsoccur before expiry you will

losebothpremiumpayments.

Chapter 5 – StrapStraddle

You should use a StrapSaddle when you expect thevalue of underlying asset tomove suddenly and that themove ismore likely tobeupthan down. To set it up, youbuy more call than put

options. Considering youbelievethatthevalueismorelikely to rise than drop, thenyou would buy two at themoney calls and one at themoney put at the same time,forthesameunderlyingasset,expiringatthesametimeandasfarawayasyoucanget.

Ifyouareright thenyouwillmakedoublethemoneywhenit rises, less the cost of threepremiums.Ifyouarewrong,

and the value fallssignificantly, then you willstillmakeaprofitontheput,less the cost of the threepremiums.

Example

Anexamplewould be if youexpected the price of ABCCompany is going tosuddenly move significantlyand you think but are not itwill be up, and the currentvalue of the stock is at $25.Youwouldwanttobuy2calloptionswith a strikepriceofas close to $25 as you canfind,andaputoptionwiththe

samestrikeprice.

Assuming the premium oneach at the money option isapproximately the same, say$1forthisexample,thenyourtotal cost to set up this tradewill be $1 + $1 + $1 = $3times100sharesso$300. Ifyou are correct and ABCcompanygetsgreatnewsandthe price rises from $25 ashareto$30ashare,thenyouwillmakeaprofitof$5*100

shares = $500 times twooption contracts so $1000,lessthepremiumcostof$300= $700. If the price haddropped by the same amountfrom $25 to $20 then youwould make $500 less $300so$200.

Chapter 6 – LongStrangle

This is similar to the longsaddle but is less expensiveand is also one of the moststraightforward volatileoption strategies. It requirestradinglevel2andallowsyoutomake a profit whether thevalueofyouroptioncontracts

increases or decreases, aslong as it does sosignificantly.Thismeansthatthe best time to employ along strangle is when youexpect the value of anunderlying asset to suddenlymoveeitherupordownveryquickly. The usual reasonwhy the value of anunderlying asset will do thisisamajorannouncement.

The issue with the long

strangle is that the price ofthe underlying asset or thechange in implied volatility,needs to be higher than itdoes in a straddle tomake aprofit. On the other hand ifthe value of the underlyingassetdoesmove significantlyas you expect then you willmake a bigger percentageprofit than you can with thelongstraddle

In order to set up the long

strangle you need to do is toexecute an out of themoneycall andanoutof themoneyput at the same time, for thesame underlying asset,expiring at the same time.The potential profit isunlimited as if the value ofthe underlying asst risessharply,thenyouwillmakeaprofitonthecalllessthecostof the two premiums.Similarly if the value of theunderlying asset sharply

dropsinvalueyouwillmakeunlimited potential profit onthe put that you purchasedless the cost of the twopremiums.

Example

Asyouareworkingwithoutof the money options, thepremium will be a lot loweras theriskofneitherof themgoing into the money isgreater. For example if thestockpriceofABCcompanyisat$25andyouexpectittomove by $5 in the nextmonth, you would buy andout of themoney call option

withastrikepriceof$26anda premium of $0.25 and anout of the money put optionwithastrikepriceof$24witha premium of $0.25. Yourtotal premium cost is then$0.5times100so$50.

If the pricemoves up to $30then your profit is new priceless the strike price so $30 -$26 = $4 times 100 = $400less the premium of $50 =$350profit.Theprofitisnot

that much higher but thereturn on investment issignificantly greater as youare only risking $50 andmaking $350 instead ofrisking $200 with a longstraddleandmaking$300.

Chapter 7 – StripStrangle

You should use a stripstranglewhenyouarefeelingbearish about a volatileunderlying asset but areuncertain that you are right,and you stillwant tomake aprofitifthevolatilityisintheopposite direction than you

expect.To set it up,youbuymore out of the money putoptions than call options.Considering you believe thatthevalueismorelikelytofallthanrise,thenyouwouldbuytwo out of the money putsand one out of the moneycall.

Ifyouareright thenyouwillmakedoublethemoneywhenit suddenly drops in value,less the cost of three

premiums.Ifyouarewrong,and the value goes the otherway instead, then you willstillmakeaprofitonthecall,less the cost of the threepremiums.

Example

Anexamplewould be if youexpected the price of ABCCompany is going tosuddenlymoveandyouthinkit will more likely be down,and the current value of thestock is at $25. You wouldwant to buy 2 put optionswithastrikepriceof$24anda call option with a strikepriceof$26.

Assuming the premium oneach at the money option isapproximately the same, say$0.50 for this example, thenyour total cost to set up thistradewillbe$1.50times100shares so $150. If you arecorrect and ABC companygets bad news and the pricefalls from$25ashare to$20ashare,thenyouwillmakeaprofit of $4 * 100 shares =$400 times two optioncontracts so $800, less the

premium cost of $150 =$650. If the price had risenbythesameamountfrom$25to $30 then youwouldmake$400-$150so$250.

Chapter 8 – TheLongGut

This is similar to the longstraddle but is moreexpensive. It requires tradingaccount level 2, and allowsyou tomakeaprofitwhetherthe value of your optioncontracts increases ordecreasesaslongasitdoesso

significantly. The long gutuses in the money options,rather than at the moneyoptions,whichmeansthatthepremiumcostwillbehigher.The advantage of it is that itiseasiertofindinthemoneyoptions toconstruct the tradethatitistofindatthemoneyoptions.Thereisalsolessriskthatyouwill loseyourentirepremium as both of thepremiums that have paid arein the money at the time of

purchase.

Inordertosetupthelonggutyou need to do is to executeaninthemoneycallandaninthe money put at the sametime,forthesameunderlyingasset, expiring at the sametime. If the value of theunderlying asst rises sharply,then you will make a profitonthecalllessthecostofthetwo premiums. Similarly ifthe value of the underlying

asset sharply drops in valueyouwillmakeaprofitontheput that you purchased lessthecostofthetwopremiums.

Example

Forexampleifthestockpriceof ABC company is at $25andyouexpectittomoveby$5 in the next month, youwould buy an in the moneycalloptionwithastrikepriceof $24 and a premium of $2and an in the money putoption with a strike price of$26 with a premium of $2.Your total premium cost is

then $4 times 100 so $400.Ifthe price moves up to $30then your profit is new priceless the strike price so $30 -$24 = $6 times 100 = $600less the premium of $400 =$200profit.

The profit is lower and thereturn on investment issignificantly lower but yourriskof losing theentire$400is also consequently muchlower. Youwill alsomake a

bigger profit by a change inimplied volatility, and theamountof the change canberelatively low. If thepriceofthe underlying asset starts torisethenyoucanclosetheinthemoneyputoptionandjustleavethecalloptionopenandvice versa if the underlyingassetvaluestartstofall.

Chapter 9 – FinalNotes

While these option strategiesarequitesimilartheyarealsosignificantlydifferent,astheydepend on you view point,and the levelof risk thatyouare willing to take. As youcan see from the examplesyou can either balance your

risksothatyouhaveanequalchance if the value of theunderlying has a huge moveup or down, or you canpositionyourself onone sideortheother,whileatthesametime making a profit if youare incorrect. By workingwith thesestrategiesyouwillquickly become adept atmaking a profit in volatilemarkets.

Conclusion

Thank you again fordownloadingthisbook!

You should now have theknowledge you need to getstarted trading using theseoptions trading strategies foravolatilemarket.

The next step is to takeaction!

Finally, if you enjoyed thisbook, please take the time toshare your thoughts and postareviewonAmazon.It’dbegreatlyappreciated!

Thankyouandgoodluck!

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TableofContents

IntroductionLegalBonus: Download the FreeTradingToolkit

Chapter1–OverviewChapter2–BasicsofVolatileOptionStrategies

Chapter3–AccountTradingLevels

Chapter4–LongStraddleChapter5–StrapStraddleChapter6–LongStrangleChapter7–StripStrangleChapter8–TheLongGutChapter9–FinalNotesConclusion