Traders with a background in stocks, futures, or forex are sometimes thrown off balance when they begin learning about options: one of the biggest hurdles is learning the various types of spreads, the risk characteristics of those spreads (i.e., the greeks), and how to think in terms of time, volatility, and price, instead of thinking in terms of price only. One frequent misconception is that different spread types are strategies in and of themselves. A reader sent in a comment…
The conventional wisdom about iron condors and other market-neutral option positions goes like this: “These strategies are profitable when markets are not trending in one direction. They are unprofitable during strongly trending markets.” Even Investopedia opts for this one-dimensional explanation:
This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security from which the options are derived.
There are two problems with the conventional wisdom. The first is that it’s false. The second is that…
These are the top five trading myths that we would kill right now if we could. Since human brains are wired to remember often-repeated associations as true even if they’re false, we’ll state the true propositions.
Technical analysis does not apply to 2x, 3x, and related inverse ETFs that track the daily changes in some underlying.
You can’t trade the spot VIX; not with VIX futures, not with VIX ETNs, and not with VIX options.
Credit spreads are synthetically equivalent to debit spreads. …
Friday, April 24, 2009
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