Making Time and Volatility Your Partners in Trading Options
A great thing about writing (selling) call or put options is that they reach its expiration date. The price on an option depends on the volatility perception of the underlying index or stock, and she number of days left to its expiry.
Now, both purchasing price and implied volatility of the option tend to decrease as the expiry date approaches finer. Normally, the drop in premiums happens faster after the 15-20th of the expiry month.
So, if that you had bought an option you should not hold on on the position after the 15th day of the month. By exactly token, if you experienced written the option earlier than this day, your profits will rapidly increase on the option with the passing of time.
Because the premiums on options decay with time, you can see why may always better to write options.
Time moves in your favour!
Implied Volatility too, tends to decrease with time. Everyone never a good idea to buy high volatility options, since this will eventually decrease and sometimes rapidly, which will deliver sharper fall inside of the option price.
As a rule, high volatility options should be sold, since your sold positions have better chances of profits due to does decrease. Similarly, low volatility options can be bought, if you can spot such an opportunity. Most online brokerages provide a calculating tool for checking implied volatility, so make use of it and make volatility your ally.
Finally, stay from the right side belonging to the market. Here, merely a peek at the daily chart of the stock or index over the past few weeks should suffice.
You do n’t need complex charts like ADX, Fibonacci, Stochastic analysis or Bollinger bands that use technical analysis. Encourage the technical geeks handle these statistical analyses They are this — statistics.
The market moves in a strange random way, and every one of you need to is let industry take you wherever it is . So just follow a simple chart that represents the present trend of the markets. I have found the Candlestick chart can be a very easy to understand tool to clearly see market trends, and the special Heiken Ashi candlesticks charts are in addition to this.
When you could have friends like time, implied volatility as well as the trend on your side as your partners in trading options, you can sit back and enjoy the ups and downs on the market.
These friends help you the most a person have are trading in index options. I trade the NSE India Nifty options taking a simplistic view from the Nifty charting patterns, and i enjoy my trades.
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