Top 10 Option Trading Websites

I'm often asked about what sites I consider valuable to my trading, or who has the best scanner, free option statistic data, etc. I've compiled this list on my favorites. I hope you find it helpful.

1. Barchart Options Center - I've always like this site for overall market data; it's well laid-out and easy to read. Recently, they've added a section dedicated to options data. I really like the sections on Highest Implied Volatility, Top Percentage Increase/Decrease in Volatility and the Volume Leaders. A great site to browse option data as well as news.

2. The Options Guide - I refer students here all the time as it's a fantastic site for finding definitions on unfamiliar option-related terms. Both experts and beginners will find good information on this site. I would say this is pretty close to having an options reference book on your desk, without having to give up your precious desk space.

3. Chicago Board Option Exchange - Of course! The CBOE has really expanded their site in recent years to offer tons of articles as well as practical tools for searching and scanning. I really like the "Tools and Resources" tab - it's something you can get lost inside.

4. IVolatility - Before the days of using software to scan for option trading opportunities, this site was amazing. It still is one of the best, free sites around for searching volatility across different option strikes, stocks, etc. and finding good trades where there are imbalances in the option market. Although it looks like now they are charging to do scans, I still like the historical data tabs and articles as well as the IV index.

5. TD Ameritrade - Why am I listing a broker on this list?! Well, some would argue that their software platform ThinkOrSwim is hands-down the best retail platform for trading, researching, scanning and paper trading options. Last I knew, you don't need to fund an account to use it. I still use it to this day for charting and viewing the option chain and risk graphs - though I don't use them as my broker. I highly recommend them for paper-trading your strategies, as I haven't found another platform which compares in this regard.

6. SeekingAlpha - Although this is just a news site, I like the news ticker for finding plays. Now please keep in mind, I don't necessarily use it the way most people use it - and that can be explained in this post. In any case, it's nice to see news on tickers at a glance as well as market updates.

7. Finviz - One of, if not the best free scanner out there. I love the fact that you can chose if you want to view optionable (has options on them) stocks - what a great time saver. The strength with this scanner isn't the scanning per se, but it's how many different ways you can view the scans once they are completed. I really love the "snapshot" tab which allows you to see all the results as a small chart on the left with the stocks fundamental data on the right.

8. StockCharts ChartSchool - Ever wonder what the exact calculation is on a Volume-weighted Average Price indicator? What the hell is a McClellan Summation Index anyway? If you've ever wondered about these type of things, this site is for you! Not only is it a great reference point for indicators and  technical chart patterns, but they have great looking charts too! (my favorite is "gallery view" from the drop-down menu on the big charts)

9. Investopedia - Another desk-reference type of site for option terms and strategies. My favorite thing about this one though is the "related terms" box at the bottom of the page which allows you to really get lost in finding knowledge about anything related to options, investing, trading, etc. Great site.

10. LiveVol - Although this isn't a free resource, the scanner is the best I've found. If you don't want to pay for the software, they still have great articles on their site and on their blog. If you run into any terms you don't fully understand, just use the sites I've listed above to expand your knowledge!

 

I hope this helps.

-Derek

http://optionboost.com

 

Top 10 Option Trading Websites

Constraining Chaos - Part Three

In this article, we will be building off the information presented in my last two posts: Constraining Chaos - Part One and Constraining Chaos - Part Two.

The main strategy for selling out-of-the-money options will be using strangles, straddles and naked options. I must warn you that these strategies are NOT for the beginner. The information I am providing here is for educational purposes only and should ONLY be used with trading a paper account until familiar.

Here are the strategies I mentioned in Part Two:

1. The Split

If you have a contract which you've sold and it is going against you to the point of causing some discomfort, the Split is the most common way to move an option that is too close in-the-money by splitting it up into two contracts which are further out-of-the-money. The idea here - as with all these strategies listed - is that we want all of our short options to live out in the 70-90% percentile of expiring worthless.

Example: Say I sold an out-of-the-money option in $GPRO - the Jan4 Weekly 47.50 strike Put for around $1.00. As you can see, the $47.50 strike put is now close to the money, so I want to close it out for approximately $2.00, then sell the $50 strike Call for approximately $1.00 and the $45.50 strike put for approximately $1.00. Now, I've "split" my position to move out to wider strikes and I've sold the exact amount of premium I lost on the original 47.50 put.

For your contract size, it will be the exactly the same for both options. So, if you have 10 contracts on the 47.50 put, after you close it out, you will then sell 10 of the $50 strike calls and 10 of the 45.50 strike puts.

 

 

 

2. The Swap

Sometimes price will move against you rapidly and unexpectedly. When you are short options, this is your worst enemy. In this situation, you'll want to keep a level-head and work off of your support and resistance lines carefully. If price rips through support or resistance and rips through your strike price, you'll want to do a "swap" - that is, if sold a put and it is against you, you will swap it out for a call of equal price, or vice-verse.

Example: If you are holding the short $47.50 call that you sold for $1.00, and price is moving through that level and it looks like it will hold $47.50 and move higher, you can close out the call for approximately $2.00 and sell the same number of 47.50 puts for $2.00 - making an even exchange of premium.

 

 

 

3. The Double Down

Just as you can move options to different strike prices for the same amount of money, there is another variable that you can use in your favor: Contract sizing.

Not all trades are the same, so sometimes a trader's confidence level is a bit lower on a less-than-optimal setup. In this case, you would want to go in a HALF your normal contract size, so as to give yourself room if price goes against you.

When you place a trade at half your normal contract size, you are anticipating the trade going against you and you've plan a step ahead of price action. This is one of my favorite strategies because it gives me room to be wrong, but if I'm immediately right, then I take quick profits on half my normal contract size and move on to the next trade idea.

Example: If you sold half your normal size of the $47.50 calls for $1.00 and they are now $2.00 - and you sold only 10 contracts. You could close these out and sell 20 of the $50 strike calls for $1.00, this would equal the same premium you were trying to collect.

 

 

 

4. The Roll Out

This is the commonly used of all the strategies. It simply means rolling one option which might be close to the money for another one of equal price further out in time. Since you are selling something further out in time, the strike price will be further away, thus completing your objective of getting your position out to the 70-90% percentile of success.

 

 

 

The goal with each of these strategies is to practice them until they become a reflex. The ultimate goal is to use your knowledge of price action to plan two or three moves ahead of where price is currently so you always have a plan of action when things go against you.

Again, I need to stress that these are high-margin, advanced techniques that should be practiced thoroughly with a demo account because they are very risky. Please be careful out there.

I hope this series was helpful. Please check out my video course on options, where we go into detail regarding these strategies and many more. http://optionboost.com

Happy Trading.

Constraining Chaos - Part Three

Constraining Chaos - Part Two

In my first article, Constraining Chaos - Part One, I discussed how seemingly random events can be classified in terms of "regular" occurrences and "irregular" occurrences. In other words, there are events which have a high probability of happening and there are events that are not likely to happen very often.

If we extend this idea to stock prices - or more specifically, option strike prices - we get an understanding of why option strike prices that are further out-of-the- money, are cheaper than those at-the-money, or even in-the-money.

Luckily for us, most option software calculates the probability of certain out-of-the-money strikes expiring worthless. Based on what the option market thinks, these particular strike prices, which I've highlighted below, have a 80-90% chance of expiring out of the money - worthless. What this means is that the trader who buys these options are spending a little bit of money for a large reward, but has only a 10-20% chance of success. On the flip-side however, the trader who sells these options has a 80-90% chance of success, collecting a little bit of money each time, with a 10%20 percent of a disaster.

(click to enlarge)

 

 

 

 "Ok, but prices are moving all the time!! If I sell these out-of-the-money options and price starts to move against me, what do I do to mitigate my losses???"

You have to actively make adjustments to your position in order to always remain out in those 80-90% success rates. While it sounds difficult to make adjustments quickly on the fly while price is moving for or against you, it becomes easier when you have a set of rules in place and a set-number of strategies.

I've narrowed these down to 4 distinct strategies:

1. The Split

2. The Swap

3. The Double Down

4. The Roll Out

.........stay tuned for my next post when I go into detail on how to use each of these strategies.

Download my free Options Ebook here!!

 

Constraining Chaos - Part Two

Constraining Chaos - Part One

cha·os - behavior so unpredictable as to appear random, owing to great sensitivity to small changes in conditions.

Many events tied to organic and non-organic matter appear to be chaotic: Bees hovering around a hive, a handful of pebbles bouncing around on the face of an audio speaker, the flip of a coin, etc. Upon closer inspection, we know that what can sometimes seem random, is really just complex mathematical statistics playing with our sense of perception. Humans were not designed to "see" complexity all that well. We have evolved to make the best quick assumption of our current perception of reality in favor of quicker decision making; i.e., our fight or flight response.

To many, the stock market, along with the price action related to securities, seems very random. Tiny little blips of green and red flash along with lightning speed filling the screens with a blur - not to mention, stocks that go down on good fundamentals, while others with horrible balance sheets and no earnings go straight up - it almost seems like there is no rhyme or reason to any of it.

Enter the term: Standard Deviation. If we think of chaos in terms of what is or isn't probable, we get a bigger picture view of what is or isn't going on and with a level of frequency. Things that happen more frequently can be plotted against things that happen less frequently.

If we have a look at a graph describing rainfall at certain times, we can see that "normal" rainfall occurs the most frequently and at the outside of the curve (the standard deviations, or "tails") we see how to plot the times when there is much below/above normal rainfall, etc.

Using this type of visual, it starts to become more clear that within something that seems random, there are groups of occurrences that can be plotted against each other. If we take it a few steps further and with a little more inspection we can assign levels of probability to these events.

What does rainfall have to do with the stock market? Well, if we revisit the notion of price action in the markets, we can observe that securities are not necessarily random and that all prices within a security also has standard deviations from its mean price.

The options market arrives at its prices for strike prices in this very manner - at lightning speed. Strike prices that are further away from the money, which have a less likelihood of being "in-the-money" cost less because they have a lower perceived probability becoming profitable, according to the general consensus of the options market along with its formula for calculating these prices.

The basic gist of this is: Selling these out-of-the-money options have the greatest probability of success, speaking from a mathematical point of view. However, there is always a trade-off - with greater probability of success comes greater risk if one of these "standard deviation" outlier events happen. Meaning that the trader "selling" this premium is taking on the risk of one of these events wiping out months or sometimes years worth of steady gains.

"So how do I get the best of both worlds? I want to sell these out-of-the-money options for small profits and protect myself from the big cataclysmic event that will bankrupt my account!"

Stay tuned..........

Constraining Chaos - Part One

Covered Calls Option Strategy

Covered Calls??? ....uggghhhh... I can already see the disappointed faces of traders wanting a more exciting strategy - "Can't you show me something where I make a lot of money really fast??".

Truth of the matter is, covered calls have always been the place where newer option traders start their education, but never really realize how powerful this strategy can be when used properly.

Here's the definition from Investopedia:

An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.

The "asset" they are referring to is usually just long stock.  The "income" is obviously the premium you sell the option for. Here's a more detailed explanation

It becomes apparent that, like most things in trading, timing is an important aspect of this strategy. But how in the world do you time something like this? Well, one of my favorite indicators for this specific strategy is RSI.

Recipe for success:

1. Find a stock with good fundamentals trending above 200day moving average and that you want to own long term.

2. Build into your position overtime and use high RSI readings to sell calls on your position.

3. Buy back your sold calls when they have less than .20 premium left.

4. Wait for another push higher to repeat the process.

Here's an example with some nice premium in the options. $FDX. Notice how an above 80 reading on the RSI provided some nice call-selling points.

"But what happens if the stock keeps going down down down?" - Trading is like chess, you have to think several moves ahead all the time. In the case of the stock breaking levels of support, for each of these levels you need to have a plan of scaling down your position, or keeping the core and selling calls closer to the money as the stock goes down.

"What happens though if I have my position fully covered and the stock rips higher?" - Well this is one of the things in trading which we all have to deal with....the idea of profits that could have been. The good news is that you still made money on the rip higher, just not as much as you would have if the stock was uncovered. Ok, fine. Live to fight another day. Let's move on.

"How do I build my position if the stock is moving higher and higher...I want more at a cheaper price" - Have a look here at how to do this.

The whole idea and goal here with this strategy is work on reducing your cost basis on your overall position while the stock is moving higher - so while the direction of the stock is moving up, the price you paid for your overall position is moving down.

Remember, sometimes the turtle DOES win the race!!

Covered Calls Option Strategy