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June 10, 2020

The Difference Between Implied and Historical Volatilities

In contrast to historical volatility (HV), which looks at actual asset prices in the past, implied volatility (IV) looks ahead. … Implied volatility can be derived from the price of an option. Specifically, implied volatility is the expected future volatility of the stock that is implied by the price of the stock’s options Click the video below to see how we dive into this important aspect […]

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June 10, 2020

Helping You Understand Option Gamma

An option’s gamma is a measure of the rate of change of its delta. The gamma of an option reflects the change in the delta in response to a one-point movement of the underlying stock price. Like the delta, the gamma is not a static measure.  It is constantly changing, even with tiny movements of the […]

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June 10, 2020

What Is Option Margin?

Option margin is the cash or securities an investor must deposit in his account as collateral before writing – or selling – options. Margin requirements are established by the Federal Reserve Board in Regulation T. Option margin differs from other types of margin that you may associate with stock or futures trading.  These types of margin allow a trader to employ leverage in […]

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June 9, 2020

The Difference Between Implied Volatility and Vega

Implied Volatility (IV) and Vega are very much related but are by no means the same thing. Implied volatility has no direct correlation to actual past historical or statistical volatility; rather it is a measure of predicted future movement. Implied volatility tends to increase when there is uncertainty or anticipated news, while it tends to […]

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June 9, 2020

What Is the PFE and How Do We Use It in Our Trading Methodologies

The Polarized Fractal Efficiency (PFE) is a technical indicator that was developed by Hans Hannula to determine price efficiency over a user-defined period. This indicator fluctuates between -100 and +100, with 0 as the centerline. Securities with a PFE greater than zero are deemed to be trending up, while a reading of less than zero indicates […]

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June 8, 2020

How We Use Implied Volatility To Calculate the Expected Move

Remember, we trade in the world of probabilities, not possibilities.  But how do we know what is reasonable or probable?  Implied volatility gives us the answer. Click the video below to find out how Follow me on Twitter @MikeShorrCBOT

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June 8, 2020

How to Calculate Profit and Loss for a Broken Wing Butterfly

When a new trader hears the term “broken wing butterfly” it tends to send shivers down his or her spine.  The term sounds really complicated.   It does not have to be.  If you break down the components of a bwf, you will see that it is simply buying one vertical spread and selling a narrower […]

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June 8, 2020

When To Use A Credit Spread?

There are many ways to approach a trade using options.  There are dozens of strategies that you can utilize as well.  Do I buy a call?  Do I buy a put?  Is there an option spread that I can construct?  Should that spread be a debit or credit spread?  Click the video below to see […]

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June 2, 2020

Why We Manage Risk the Way That We Do

Shares of Ulta Beauty tanked more than 20% after the company reported earnings after the bell Thursday that missed analysts’ expectations and slashed its outlook for the fiscal year. The company said that the cosmetics industry has struggled as a whole this cycle, because there haven’t been innovative beauty routines that drive consumers to purchase products as […]

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June 2, 2020

What Is A Confidence Interval?

We talk a lot about price distributions, standard deviations, confidence intervals, etc. in our rooms. What are we talking about? We throw these terms around like it’s “2+2=4” and that is not fair. Here is what we are talking aboutFor example, a 95% confidence interval is a range of values that you can be 95% […]

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