I had a nice exchange with one of our Pro clients today I likened his vol trading to a Trap Door Spider. The Trap Door spider does not spin a web over and over again, hoping for something to fly in. They wait until the opportunity is there and then pounce out of their hole at the tasty bug sitting there unsuspecting. Trading volatility is a lot like that as one waits for an opportunity to add a position.
I review in our courses about two kinds of option traders:
One who uses the options to trade the stock, like an AAPL bull
One who use the stock to trade the options, like a vol arb trader
Both are perfectly fine and I have seen many students, floor traders and retail clients alike, excel at either. What is important is to decide want camp to jump in when putting on a trade. You really like the stock, what is the best way to get long with options? You want to sell the juice, what is the best way to do it with the best risk/reward profile.
Mark made a nice EFX trade this week, hated the stock, and found a simple way to express that buying cheap put spreads. This was a case of the options just as a means to short EFX. If you want to learn how to tell the difference trading, namely what are you really trading, take our class tomorrow night. You won’t be disappointed. You would rather learn to be the spider than the prey.
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