Slope of Hope Blog Posts
Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
What’s With These Spreads?
Bucc’s Put Credit Spread (Part 3)
Preface from Tim: Beloved Sloper Buccaneer was kind enough to answer my “call for content” during my most desperate hour (that is, since I’m traveling) and submitted a huge post which I’ve broken into several parts, not just because it’s so danged big, but also to stretch out the content for my own purposes. Thank you, Bucc! Part 1 is here and Part 2 can be read here.
The most important aspect of Theta to remember is that it assumes IV & price movement are held constant. Markets move every second, so it is unrealistic to expect them to be frozen. We can’t look at our options and expect the value to decrease by Theta every single day. While Theta will come out of the option, price movement & IV will change the value as well. As long as we’re on the right side of the coin (positive Theta), we can rest assured that our option’s extrinsic value will get lower and lower as we reach expiration, which is one of the keys to success for an option seller.
(more…)CD Memories
Bucc’s Put Credit Spread (Part 2)
Preface from Tim: Beloved Sloper Buccaneer was kind enough to answer my “call for content” during my most desperate hour (that is, since I’m traveling) and submitted a huge post which I’ve broken into several parts, not just because it’s so danged big, but also to stretch out the content for my own purposes. Thank you, Bucc! Part 1 is here.
Implied Volatility (IV) and Implied Volatility Rank (IVR)
Implied Volatility (the expected % move in an underlying) is a standardized metric for the general level of options prices for a given underlying. Option prices do not imply a direction regarding the underlying’s movement, they imply only the probable distribution or expected price range of the underlying. For example, SPX has an IV of 20 means that SPX is expected to move within an expected range of 20% for the year. Its option prices will be priced to anticipate a 20% move. When Implied Volatility increases, probability OTM decreases. When Implied Volatility decreases, probability OTM increases. IV is a dynamic figure that changes based on activity in the options marketplace. When IV increases, the price of options will increase as well. When IV is high you should increase your size, and when IV is low you should reduce your size.
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