Traders,

Let’s continue our investigation of the 3-dimensions of options: direction, volatility, and time.

Recall that volatility trades are a bet on the magnitude of price movement. They take on two forms: long volatility and short volatility.

Long volatility trades include long straddles, strangles, inverted flies, and debicons. They are a bet that the stock will move more than expected.

Short volatility trades include short straddles, strangles, flies, and iron condors. They are a bet that the stock will move less than expected.

Short volatility strategies are the more popular two for two primary reasons.

First, options tend to be overpriced on average, thus giving a slight edge to sellers.

Second, strategies that profit from time decay nearly always come with negative vega. Thus, by default, cash flow strategies benefit if the market moves less than expected.  

Last night’s Cash Flow Club explored how to think about volatility and expected move. Check it out if you missed it.

Chart of the Day: Euro Stocks ETF (FEZ)

European equities are breaking out to a new 52-week high. FEZ is now up 50% since October. That’s not bearish.  

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cash Flow Club Replay

If you missed last night’s webinar or would like to watch it again, check it out here.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only the Coaches at Tackle Trading can deliver.

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