Building on my
prior article on Adam Warner's book, Options Volatility Trading: Strategies for Profiting from Market Swings
Chapter 3: Understanding the VIX. This is a critical chapter because it serves as the backbone for the book. You learn what volatility is and how it is represented through VIX. VIX is how many investors and traders express fear and complacency. However, VIX is not perfect and this chapter explains why.
Chapter 4: Nuts and Bolts VIX. You learn that VIX represents the expected volatility of the SPX, the S&P 500. Notice that it is an expected volatility. For example, a VIX of 32 implies a roughly 2 percent range in the SPX on any given day. You also learn that volatility has two key components: volatility of individual S&P 500 component stocks and correlation among those stocks. That is, if stocks are extremely volatile but uncorrelated, then the VIX will be lower than when the stocks are undergoing the same volatility but are tanking in unison.
Chapter 5: Volatility Timing. With regard to buying and selling options, you learn that not every day is created equal. There are better days within the expiration cycle to either buy or sell options. And, there is seasonality to options as well.
Chapter 6: How Do Trader Trade Volatility. This chapter is where the real fun starts. Now, you are beginning to use your knowledge from the previous chapters to think about how you want trade. If you buy or sell options, what are your considerations with regard to volatility, delta, and gamma? Can a buyer and seller of the same options both make money, and if so, how? Do you prefer a high or low volatility environment, and why? What does volatility mean to options traders?
In a few days, I will provide another update.
On Sunday, 18 July 2009, I photographed Fish Creek in Fish Creek Provincial Park, which is located within Calgary. In a larger version of this photograph, you can easily see one of the many bridges in Fish Creek Park. And, if you click on my Flickr profile link, you will be taken to Flickr where you can see more of my pictures.
Disclosure: As part of the Amazon Associate program, I receive remuneration for each book sold by clicking on the Amazon.com links in my article.
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