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Options Trading in Extremely Volatile Markets - Ebele Kemery PowerPoint PPT Presentation


The 2008 stock market crisis not only rocked the financial system and the world economy but also the pockets of countless options traders all over the world. Options traders who used to profit in the years prior to this market crisis broke their bank as none of their options strategies seem to work in this market anymore

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Options Trading in Extremely Volatile Markets - Ebele Kemery

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Options trading in extremely volatile markets ebele kemery

Options Trading in Extremely

Volatile Markets - Ebele Kemery

The 2008 stock market crisis not only rocked the financial system and the world

economy but also the pockets of countless options traders all over the world. Options

traders who used to profit in the years prior to this market crisis broke their bank as

none of their options strategies seem to work in this market anymore. So what is it

about extremely volatile markets and how should one profit through options trading

under such conditions?

Ebele Kemery says that the Extremely volatile market conditions not only produce

unpredictable short term stock price swings but also open up the bid ask spread of

individual stock options due to a lower liquidity and profiteering by market makers.

This combined effect not only made it doubly hard for options traders to make a

profit. Volatile options strategies, supposed to be meant for such conditions due to

their ability to make a profit when the market moves up or down strongly and their

ability to profit from an increase in volatility, also failed to produce any consistent

profits due to the higher premium outlay and wide bid ask spreads, soaking up most

of the profits.

Unexpected rallies also crunch volatility to the extent of producing losses through

decaying the premium of long legs at express speed. Short term (weekly, monthly)

directional options strategies fared even worse as it not only became almost

impossible to predict short term price swings but the high premium and bid ask

spreads also took most, if not all, of the profits away even if the stock did move in the

expected direction.

So what works in an extremely volatile market condition such

as this one?

First of all, let's look at all the different ways to trade options. There are 3 main

options trading methodologies; Swing Trading, Position Trading and Day Trading.


Options trading in extremely volatile markets ebele kemery

Swing tradingis a directional options trading methodology that aims to pick

stocks that will move quickly and strongly within a short period of time in a

predictable direction and then execute bullish or bearish options strategies in order

to profit from these moves. As mentioned before, trying to profit from directional

swing trading in an extremely volatile market is like swimming against the tide. Not

only is directions hard to predict in the first place but the high options premium

along with gapping bid ask spread all work against its favor.

Position tradingis more complex than Swing Trading as it aims to profit

mainly (although there are also position trading strategies that are directional in

nature) from volatility or premium decay through putting together several different

options and / or stocks in order to produce a hedged, market neutral position.

Position trading has produced some pretty profitable results for me in this market

crisis as volatility soared and options premiums are high. This puts the

disadvantages of an extremely volatile market condition in the favor of the options

trader. Such positions include dynamically hedged delta-neutral as well as delta-

gamma-neutral positions. Both of these position trading strategies aim to neutralize

market movement such that unexpected swings do not affect the position

significantly while the position safely takes the high options premium on the short

legs into your pockets.

Day tradingis an extremely dynamic options trading method where options are

bought and sold very quickly within one day in order to profit from the slightest

intraday price swing or change in volatility. This strategy was a pretty hard one to

profit from in low volatility market conditions as prices doesn't change enough

within a day to produce significant profits. However, day trading becomes extremely

profitable in the hands of seasoned options trading veterans in extremely volatile

market conditions such as this market crisis as the Dow itself has produced intraday

trading ranges of up to 10%! Yes, this is the kind of trading range and price range

that cannot be realized in normal market conditions. Day trading often takes the

form of simply buying or shorting call or put options and then quickly covering them

when profitable.

Day trading also avoids the extreme overnight uncertainties that so often catch swing

traders by surprise in this market crisis. Sudden overnight good news can often gap

the Dow up by a significant amount and closing it over 10% higher. This can wipe out

all your profits if you had been betting in the opposite direction overnight. Day

trading, however, is extremely risky for beginners in options trading as the price

movement is so fast and dynamic that when things happen, beginners may not know


Options trading in extremely volatile markets ebele kemery

what to do and be able to do it quickly. This is therefore not recommended for

beginners.

Ms. Ebele Kemery has a decade of experience in Finance, Investment Management,

Sales, Trading and Commodities. Satisfy all risk management requirements.

Consistently promoted; recognized for development and leadership strengths. Ebele

Kemery has Strong analytical approach; full-tuition scholar from top-tier university

possessing a Bachelors in Engineering in Electrical Engineering.

To know more please visit: https://sites.google.com/site/ebelekemeryny/


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