It has come to my attention that my previous blogs have been blogger-esque rants about the wrongs of Wall Street and the government affecting traders and the population as a whole, when they should be about option trading, and more importantly, option education. Option education, after all, is the world in which I live (with Market Taker Mentoring and my previous collaborations). So, I decided to talk a bit about my area of expertise, Trading Option Greeks, in terms of options education for option traders.
My thought was that the main problem for traders–aside from the corruption of Wall Street and the government (can you say $150 billion in earmarks???[couldn’t resist])–is that most option traders focus on delta. It has been (to most traders I know) nearly impossible to call direction from one day to the next. And, for the record, I’d argue that that is typical in trading. Volatility traders and academics alike will say that it is very difficult (some extremists say impossible) to call direction. So why focus on the difficult game of directional (i.e., delta) bets at all?
In trading it’s funny. The more sophisticated a strategy, the easier (arguably) it is to trade because there is more edge in the trade. In times like these, I like to focus on volatility trading. Volatility trading–whether gamma/theta or vega–is a completely different philosophy. I’ve talked to lots of traders lately who have thrown up their hands and simply given up calling market direction, but just about all of them have had opinions on market volatility. It seems to me this is where traders ought to pay more attention.
Of course, the roadblock for many traders is that option volatility is an esoteric concept. To learn option trading at a deeper level, however, requires an understanding of option volatility and option greeks. To really learn options trading requires a stiff dose of options education. Going forward, this is where I will attempt to concentrate my efforts in my blog. I will also try to add some free options education to my Web site, markettaker.com. Until next time, good luck trading.