Options: Optimizing Leverage, Managing Risk & Harnessing Volatility

We provide you with bullish, bearish and volatility options trading picks that are selected based upon a rigorous analysis of the minor and intermediate trends, as well as the implied volatility picture, of liquid stocks on U.S. exchanges. Access our FREE Options Picks at the Ears on the Markets blog.

Technical Options Trading Picks

Throughout the trading week, we scan the universe of underlying stocks and ETFs for technical setups that are attractive to options traders. We then further whittle down the list of probables, by analyzing the relationship between the historical volatility and implied volatility.

The underlying stocks that show both, good technical setups and workable implied volatility scenarios, are added to the options trading picks lists, and appropriate options trading strategies are suggested for members to consider.

So you'll find that each new options pick comes not only with a rundown of the technicals on the stock but also complete trading parameters, including entry triggers, targets, and potential stop loss/profit protection strategies.

Existing trading picks are updated after every trading session and any necessary changes in trading strategy, or potential repair or adjustment stategies, are relayed to members. You can take a look at a synopsis of past options picks via the 'Past Options Picks' tab above.

Directional & Volatility Strategies

One of the biggest advantages of options trading is the ability to hedge ones bets by entering trades that can make a profit regardless of whether the underlying stock rises or falls in price.

While stock traders have to choose a side, long (bullish) or short (bearish), options traders not only have the ability to make directional (bullish or bearish) trades, but also to utilize volatility based options trading strategies that in effect allow the trader to profit from any non-insignificant movement in the underlying stock price.

So, in addition to basic strategies, such as Long Calls, Long Puts and Protective Puts, you'll find strategies such as Long Straddles, Long Strangles and Call Backspreads, which profit from increasing volatility conditions, as well as Vertical Spreads, Calendar Spreads and Covered Calls, which benefit from declining volatility conditions.

Description

The following is a brief description of each component of a typical options pick, a sample of which is seen here. Click the image to see it in more detail.

As you can see, we provide a lot of relevant information in as concise a manner as possible, so that you have a good idea of what we find attractive in the chart of the underlying and what makes the featured options trading strategy a good choice.

Data Table: The data table on the top of the segment provides a synopsis of the trading parameters, including a live chart, ticker symbol of underlying stock, generic options strategy chosen, directional and volatility outlooks, stop loss trigger (if any), target and projected exit date.

These details are updated as and when changes are made to the trading pick.

Annotated Stock Chart: The data table is followed by a snapshot of the underlying stock chart, which is updated at the end of every trading session and highlights the important technical developments on the minor/intermediate trend of the underlying stock.

Trading Notes: The trading notes section follows the stock chart. Note that the trading notes are listed in reverse chronological order. New trading notes are provided subsequent to each update/change in the trading plan.

Options trading is of course a little more "involved" than stock trading, and so we like to go the extra yard and give you a look at a couple more facets of the trade.

P/L Diagram: The profitability or profit/loss diagram provides essential facts such as the max profit and max loss values, original IV (implied volatility) level, in addition to a graphical representation of potential profit/loss values at expiration and at an interim (projected exit) date.

Implied Volatlity Analysis: Finally, we provide you with an implied volatility diagram, which compares actual recent historical volatility levels on the underlying stock and the current implied volatility levels on the options thereon.

How We Choose Our Trading Picks

To get a more in-depth look at the methods we use in choosing our trading picks, please view the write-up, Identifying the Best Trading Opportunities. Also feel free to take a look at our Past Options Picks, which we started tracking in April 2007.