I’ve read a few option books.
THANKS... This is probably the most comprehensive "greeks" article/book I’ve read.

Wonderful blog. …..
A wonder wealth of knowledge there. Thanks so much for your kindness in publishing it!

Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Saturday, January 30, 2010

10 Important Trading Lessons

I got to know that there is a series of free trading lessons, which consists of 10 topics that traders, both beginners and experienced traders should find them very useful.
While for more experienced traders, they could serve as a refresher, I think these trading lessons are particularly even more important for beginners.

The 10 Free Trading Lessons will cover the following topics:

(1) The importance of psychology in price movement.

(2) How to spot mega trends.

(3) Understanding of technical price objectives.

(4) How to picture price objectives.

(5) How to trade with moving averages.

(6) How to use point and figure trading techniques.

(7) How to use the RSI indicator.

(8) How to correctly use stochastics in your trading.

(9) How to use the ADX indicator to capture trends.

(10) How to capitalize on natural market cycles.

On top of the above, you will learn all about Fibonacci retracements, MACD, Bollinger Bands, and much more.

These 10 free trading lessons will be sent via email.
In order to get this, just fill out the form here. Then you should be able to get it started very soon.
Hope this info can be useful to you. :)

Monday, January 25, 2010

Conditional / Contingent Order – Part 1: How It Works

Conditional / Contingent Order is an order with sets of criteria attached (specified by the trader / investor placing the order), which will automatically be submitted to the market if the predetermined sets of criteria are met.

How Conditional / Contingent Order Works
Conditional / Contingent Order can be specified as a Market Order or Limit Order.
You can then set one or more conditions attached to the order, and normally the condition is set in terms of price and/or volume.
You can also specify those conditions for stock, option or combination orders, and use many different triggers (e.g. the price and/or volume of the security being traded and/or another security, including security index).

When you are setting condition in terms of Price & Volume, for the order to be sent to the market, not only the price must pass the preset trigger price, but also the trading volume must also exceed certain target.
Hence, volume condition serves as additional safeguard in order to avoid an order being sent to market without sufficient momentum (e.g. when the price is trading at just slightly outside your trigger price but only in small volume, which does not really indicate a significant market sentiment change).

For Volume condition, the Volume Target (i.e. the units traded limit) will consider all units traded on the day the price condition is met, including units traded at both above and below the condition price / Trigger Price.

Therefore, if you enter a Volume condition, your Conditional Order would only be triggered and submitted once the Price Trigger has been passed and your Volume Target has been reached both on the same day.

As Conditional / Contingent Order is a more complicated order, not all brokerages can accept this order.
Even the procedure or rules of how to place a Conditional / Contingent Order may vary from one to another brokerage. Some brokerages may also only allow setting conditions for prices, but not volume.
Hence, you need to check with your own brokers specifically how to do it.

Normally, you are allowed to amend or cancel a conditional / contingent order any time before the conditions you have set are met. However, once the conditions have been met and the order has been triggered, it is not possible to cancel the conditional / contingent order.

Continue to Part 2: Examples

For the list of other types of order, go to: Types of Orders in Trading.

Saturday, January 23, 2010

New Free Trading Videos with Special Feature: TREND TV

Are keen to learn about the following:

* Short Term Trading Strategies
* Predictive Trading Indicators
* Specific Market Entry Points
* Tomorrow’s Forecasted Trading Range
* Applications of Candlestick Charting

Trend TV provides you with the following educational videos to share all the above topics:

Video 1: Basic Indicators to Analyze Markets

Video 2: Advanced Trading Applications of Candlestick Trading

Video 3: Day Trading Made Simple

Video 4: Using “Differences” to Spot Shifts in Momentum

Here is what one of the above videos is all about:

Advanced Applications of Candlestick Charting:
Many investors attempt to incorporate candlestick charting into their trading plans. However, few know why this tool has become so popular.

In this complimentary video, “Advanced Applications of Candlestick Charting,” authors, software programmers, and co-founders of the International Pacific Trading Company, Gary Wagner & Brad Matheny will walk you through:

* History of candlestick charting
* How to interpret candlesticks
* How to merge techniques of Eastern & Western technical analysis together
* How to merge candlestick techniques with your current trading plan
* And more…

You’ll watch and listen as Wagner explains the importance of using this strategy.
He says, in part, “Candlestick patterns are a mathematical formula which illustrates the psychological market sentiment. In other words, as a market reverses, or a market is moving in an up-trend, there are certain traits that can be distilled in terms of mathematical formulas that will reveal some very important information.”

This 100 minute complimentary video can be found in Trend TV.

What is special / different about Trend TV?
You don’t have to worry about watching the whole video at once. After you have a password, you can revisit anytime to watch the rest of a video, review a video, or watch other videos on Trend TV.

More importantly, there is no cost to watch all the above videos, as this is part of an educational program that we thought you would find beneficial.

So, wait no more so that you won't miss it!
Watch Trend TV now via this link.

Saturday, January 16, 2010

Trading Educational Videos: Option Greeks, Learn Technical Analysis from John Murphy, and Market Wizard

The video to learn some technical tips from Dan Gramza for free is no longer available.
Nevertheless, there are other new free trading educational videos, which are even more interesting. Don’t miss this chance anymore! Summaries on what the videos are all about are below.
To watch all the videos mentioned below, just click the “Sign Up” button in that page and fill up the registration form in order to watch the videos for FREE.

How much do you know about the “Greeks”?
No matter what the investment, an investor needs to know and fully understand the potential risks of the investment prior to committing capital to that investment. In the options market, the Greeks define and quantify the risks of your position before you commit to the investment. Understanding the Greeks is a must for proper risk management. Further, the Greeks can also help you identify and select not only the proper strategy to fit the opportunity you selected, but also which specific options to use to create that specific strategy.

Without a full understanding of the risks of an investment, an investor should never commit hard earned money. If you do not know your Greeks, you have no business being in the options market! So, option traders or those who are keen to learn options, don't miss this video.
Learn more about Greeks from the option expert in this video. Grab it now before it's no longer available for free.

Learn Technical Analysis from Award Winning Author
John Murphy has written 8 highly touted technical analysis books and today you’ll be sitting in on one of his seminars for no expense. His expertise is known the world over, his teaching style is impeccable, and he’s agreed to give access to a limited number of people for one of his most sought after seminars!

John’s seminars are usually reserved for an elite few, so please take advantage of the chance to learn from a man with over 30 years successfully trading using technical analysis, by watching this video.

What makes a Market Wizard?
How much do you think you could learn if you had a chance to sit down with over 15 of the most successful day, value, and long term investors of all time? Do you think you’d finally get that one piece of advice that takes your trading from OK to extraordinary? Today you have the chance to pick the brain of one man who has sat down with experts and got your top questions answered.

The key ingredient with ‘super-traders’ isn’t as complicated as you think, as most of them share the same traits and behavioral patterns, but it’s how they put them to work in the markets that sets them apart.
So, find out what sets ‘super-traders’ apart in this video.

Wednesday, January 13, 2010


Go back to Part 1.

Theta is an options greeks that measures of the rate of decline of option’s time-value resulting from the passage of time (time decay).
Theta provides an estimate of the dollar amount that an option price would lose due to 1 day decrease in the time remaining to expiration, assuming other factors remain constant.

Theta of ATM, ITM & OTM Option
Theta is typically highest for ATM option, and is progressively declining as an option moves to ITM or OTM.
This makes sense because ATM options have the highest time value component, so they have more time value to lose over time compared to ITM or OTM options.

Effect of Time Remaining to Expiration on Theta
For ATM option, Theta will be higher as an option is approaching the expiration date.
In contrast, for ITM & OTM options, Theta will be lower as an option gets closer to expiration. The above effects are particularly observed in the last few weeks (about 30 days) before the expiration.

Impact of Implied Volatility (IV) on Theta
When Implied Volatility (IV) decreases, Theta will decrease, especially when it is approaching expiration.
On the other hand, when IV increases, Theta would also increase.

Vega measures how sensitive an option’s price to the changes in Implied Volatility (IV). Vega estimates how much an option price will change as a result of 1% change in volatility.

A change in IV will have the same effect on both Calls and Puts options:
An increase in IV would increase an option’s price, whereas a decrease in IV will decrease an option’s price.
This is because higher volatility implies greater expected fluctuations in the stock price, which means a greater possibility for an option to move into your favor by the expiration date.

Vega of ATM, ITM & OTM Option
Vega will be the highest for ATM options, and would gradually get lower as options become more ITM and OTM.
That means, when there is a change in volatility, the value of ATM option would change the most. This makes sense because ATM option has the highest time value component, and that the changes in IV will only affect the time value portion of an option’s price.

Comparing between ITM & OTM options, the impact of volatility changes will be greater for OTM options than it is for ITM options.

Effect of Time Remaining to Expiration on Vega
Assuming all other things constant, Vega decreases when as time passes (as the option gets closer to the expiration).
Vega is relatively higher when there is more time remaining to expiration. This is because options with more time remaining to expiration have larger portion of time value, and it is the time value component that will affected by the changes in volatility.

Effect of Implied Volatility on Vega
Vega will be lower when IV decreases, especially for ITM and OTM options.
However, Vega is relatively stable / unchanged for ATM option.

Related Posts:
* Option Greeks
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Understanding Option’s Time Value
* Learning / Understanding Candlestick Charts
* Learning Charts Patterns