Continuing with our options theme this week we have brought in, J.W. Jones, the primary analyst and moderator of OptionsTradingSignals.com. Today J.W is going to share with you his take on the recent silver market, and how volatility and options have presented him great opportunities in markets where traditional investors are running for the hills. Be sure to comment with your thoughts and visit J.W at Options Trading Signals.com.
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Take calculated risks. That is quite different from being rash.
– George S. Patton -
Last week silver was the focus of incredible price swings which left many licking their wounds and shaking their heads at the trading losses they had incurred. This sell off was likely triggered by the increase in margin requirements for futures contracts, but the stunning price decline extended to all vehicles like exchange traded funds use to trade the glimmering metal.
I recognized the potential opportunity early in the week, and began to look at various position structures using options on Tuesday morning. In order to understand the thinking behind this trade, it is necessary to understand the concept of implied volatility of an option contract. Implied volatility, together with time to expiration and price of the underlying security, form the three primal forces that rule the world of option pricing. This measure of volatility is best described as the collective opinion of traders as to the future volatility of the price of the underlying. Implied volatility is the variable which determines if options are priced cheap or overvalued. Continue reading ""Take calculated risks. That is quite different from being rash.""
