Last weekend I attended Wealth Academy Options course conducted by Mr Ron Ianieri from Options University. Ron is a former floor trader, market maker and specialist on the Equity Option and Foreign Currency Option Trading Floors. (His Bio). Ron is also a well-respected option trainer and he has been invited to speak on U.S markets and movement on CNBC Asia TV channel several times. (CNBC's Interview)

Option is a derivative product. It is tradable at stock exchanges and its price is derives from the underlying product. There are options for stocks, indexes, currency, commodities, bonds, etc. The advantages of option are cost efficiency, better percentage return, limited loss and portfolio protection.

In this beginning course, you get to learn things like Volatility, The Greeks, Options Pricing Model, synthetic positions, trading strategies and morphing techniques. Besides learning these that I mentioned, you also entitled to ‘Options 101 Home Study Course’ learning materials from Options University (Click on my blog recommended course).

Before you begin with options trading, it is important to understand the basic knowledge such as volatility and the Greeks. Learning this basic knowledge will certainly help you to decide which and when to apply the correct strategies. Have you ever wonder why the current market situation causes the VIX to hit the record of 80? Why volatility has to do with options pricing? I heard many experienced options traders mentioned the phase ‘buy options when volatility is low, sell options when volatility is high’. I got my answers through this course.

Volatility is one of the factors that affect the option prices (on the extrinsic value). Volatility is widely discussed in any options trading books. It is defined as dispersion of an asset’s returns from their mean and usually modeled through a bell shaped curve with the standard deviation values. Understanding the volatility will able to help you to better understand what is Historical Volatility (HI) and Implied Volatility (IV). Knowing the HV and IV, you will able to determine the theoretical value of option prices (most of the broker software platforms have this value available, so you do not have to worry about applying the complex mathematical formulas) and thus allowing you to make judgment of why options are priced at respective values.

I invite you to check out this course and take some time to go through it if you are thinking of taking your first step into becoming a professional option trader.

When you look through the option chains in your brokerage application software, you might notice the individual options have ticker symbols just like stocks do. The symbol identifies the underlying stock, the expiration month, the strike price and the type of option. There are a series of letters which identify the option. They appear in the order of root, expiration month and strike price. The letter that is used for expiration month is also used to identify whether the option is a call or a put. The 1st letter or group of letters (up to 3) identify the underlying stock and is called the root (not necessary be the same as stock symbol). The next-to-last letter in an option symbol indicates the expiration month. If option is a call, the first half of the alphabet is used. If the option is a put, the second half of the alphabet is used.

The last letter of the option symbol indicates the strike price. Here are codes to decipher the strike price.

Options Strategies

I attended the preview of live training seminar of Options University by Ron Ianieri at AKLTG.

It is an education session for me as I learned the basic options strategies from Ron Ianieri himself.

Stock Replacement Strategy
Idea is this strategy is to trade option that mimics the stock (go for small Theta and Vega but high Delta)
• Buying a call versus buying the stock
• Do not simply buy a call if you think the stock is going up
• Do not simply buy a put if you think the stock is going down
• Learn where the ‘sweet spot’ is for optimal profitability
Where is the ‘sweet spot’? Refer to choosing option with high delta (in the ranges 80-85)
• Which month of option to choose? Suggest to look at the stock movement to determine the appropriate month

Stock Replacement (Roll up)
• Stock replacement ‘Roll up’ is a bullish strategy
• Selling your long call with a lower strike while simultaneously buying a new call with a higher strike in a one to one ratio
• This trade produces a credit which is money received
• This credit is part of your profits being locked in

Example:
Imagine you buy a call option for stock XYZ with the strike price of $160, when stock XYZ price reaches $200, you sell that call option and at the same time buy another call with strike price of $180. You now have locked in a profit of $40 (simplified intrinsic value calculation for illustration purpose). As stock XYZ continue to move up to $220, again you sell that call option and buy another new call option with strike price of $200. By doing this, you again locked in a profit of $40. Repeat this cycle as stock XYZ continue to move up (as a form roll up) for a few times.


The Greeks
Delta
Change in option price relative to change in underlying asset price (Speed)

Gamma
Change in option delta relative to change in underlying asset price (Acceleration)

Theta
Change in option price relative to change in time left to expiration (Time Decay)

Vega
Change in option price relative to the change in the asset’s volatility (Historical Volatility)

Rho
Change in option price relative to changes in the Risk Free Interest Rate (Interest Rates)

So much more to learn about options trading. One of the books that I find very useful is Options Made Easy: Your Guide to Profitable Trading (2nd Edition) by Guy Cohen (listed as my recommended reading)