OPTIONS
Your Options Game Plan
Trend And Volatility
by Jesse Chen
This combination can help you determine your optimum spread strategy.
In options trading, you often either become
attached to a few spread strategies or end up gambling on individual calls
or puts. Unfortunately, no real methodology can be developed using either
of these techniques. A steady and consistent trading income can come about
only when you create a complete game plan for trading options. One such
game plan or methodology involves the combination of trend and volatility.
USING IT
The first step is to find an underlying stock or future with a big options
chain, such as QQQ or MSFT (Microsoft). The advantage of working with an
underlying instrument with a big option chain is that it gives you more
spread strategies and better liquidity.
Next, you need to find the trend of the underlying, which you can do
by using basic technical analysis techniques. I have categorized a 30-day
trend into the five levels displayed in Figure 1. These percentages are
tweaked arbitrarily based on today's prices versus the price 30 days ago.
Figure 1: Here you see how the 30-day trend can be categorized
into different levels.
...Continued in the February 2003 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the February 2003
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
