Here is a look at Apple's volatility vs Apple Shares. Apple has had high volatility for many years and volatility vs the underlying is almost always converging. I only see two really good opportunities with really cheap options here. However, we are seeing a fast downtick in volatility and could get back in the low twenty's.
In a normal market cycle we have long bull cycles followed by short term bear cycles. Here is a strategy using a simple method of probability and what is known about market cycles.
Reference Chart Above: Each - pen - has a group of volatility lows that consistently has a grouping of lower -pigs - than the previous lower pen. Three or more - pigs - in the pen and volatility is likely to run up as you can see in the chart above.
Market timing with more little piggies in your pen an odds are your short or long put trade will be a winning trade. However, if they hold too long corrections often quickly reverse, and they too turn into greedy pigs slaughtered with the longs.
littleriver you're missing the point here.
What I'm describing in the charts here are rare opportunities using options when you see unusual activity in the underlying's volatility index. The idea is to find contrarian signals by charting *BOTH the underlying volatility index of the underlying and the underlying.
What to watch for is the long shadow/tweezer's (using candlesticks) on the underlying volatility chart when there is little to no price movement with the underlying. Very often than not, this is a indicator of future volatility. The best way to make money with future volatility is to buy near dated options using a strangle option strategy, which I described above, or taking a small deep OTM Long Call, or deep OTM Long Put.
There is a higher probability that with a lag (days or few weeks of a long tweezer candle with little price volatility on the underlying) a big move will happen and your strangle will make large gains. If you are correct with your deep OTM option play, you'll make a large % gain.
>> http://finance.yahoo.com/q/op?s=SPY+Options <<
In-the-money options are highlighted yellow for the calls and puts. Out-of-the-Money OTM options are in white.
SPY Current Price is 160.42
Calls above 160.50 are out-of-the-money OTM
Calls below 160.00 are in-the-money ITM
Puts below 160.00 are out-of-the-money OTM
Puts above 160.50 are in-the-money ITM
I think options market is very useful to make operation's coverage and structurated products, truly very interesting. You can make your own no risk investment product with assets over the world. Very intersting alternative to people who wants to invest in assets with high volatility but that they have fear to risk. Thx another time.
But i dont like that the option's price is very murky. The emisors put the price that they wish. It's dark, very dark. They say the they have a clear formule but is reallly a very complicated formule with volatility, volume, price, prime....
I like clear datagrams, clear data series with min and max quoted in a organized market tick by tick. I know they are also manipulated but it's less and you can profit it.
Anyway your published info is very interesting, Thx JR.