MTT - Options Flashcards
Why does John F. Carter say options are the one instrument that gives people the best chance of success?
- Great leverage for directional moves
- Fixed amount of risk for buying or calling a put, ur account can’t go negative
- it’s way more forgiving
- can be setup for any account size
What’s the only real danger in selling options?
Selling naked
What’s a spread?
Selling a naked option with a fixed amount of risk in place
What markets have options available?
nearly everything - individual stocks, sectors, idexes, currencies, on the lookout for crypto
Whats one idea for benefitting from rising interest rates?
Instead of shorting bond futures and holding all that risk, buy long-term puts on TLT (iShares Barclays 20+ Yr. Treasury Bond ETF)
Whats one idea for benefitting if u think NFLX (Netflix) is going to trade sideways for a while?
Sell premium
What’s the main trick with options?
Learning what NOT to do
How to know when an option trade is too complicated?
When u can’t explain it to a 12 yr old
What’s a good focus for simplicity?
Focus on directional plays and collecting premium
When does a call option increase in value?
when the value of the underlying stock moves higher, like going long
When does a put option increase in value?
when the value of the underlying stock moves lower, like going short
What does 1 option represent?
100 shares of stock
What are strike prices?
an option is either in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM)
What is intrinsic or real value in an option?
Equal to the current market price at the time
Why are out-of-the-money(OTM) calls so difficult?
Not only does trader have to be right, they have to be right in a big way. It has to be an explosive move
What is Delta?
how far the option price will move in relation to each $1 move in the underlying stock
- 00 means stock goes up $1 then option price goes up $1
- 10 means stock goes up $1, then option price goes up 10 cents (market makers think there’s only 10% chance the stock will get to strike price
Why aren’t purely directional plays very sexy?
simple, and they work, as long as combined with high-probability technical setup on the underlying stock
What’s the key to options?
1st - clean signal on an underlying stock, then stepping in with option strategies to leverage the move
What’s one of the biggest mistakes newer option traders make?
Not understanding the role of implied volatility (IV) and how it affects the price of an option
When does implied volatility increase?
With panic, uncertainty, or a looming big event with the underlying stock
What are our 2 choices when trading options?
- buy an ITM option or sell a credit spread during a quiet IV period for a directional play
- sell options during high-IV periods, looking for a collapse in the value of the IV
What’s the main reason to sell options?
They’re literally losing premium value, everyday, especially OTM options
What is one mistake option sellers make?
Hoping their option expires worthless. Satisfying, yes…but risk/reward ratio is outta whack. Take the profit and gop
What does John Carter say about buying out-of-the-money (OTM) options?
Won’t do it. All premium and a sucker’s game
