Options Trading Strategy
I’m Meta Matt, Director of Education and welcome to PB University LITE! This is a 50 Class Trading 101 Series geared towards both new and veteran traders alike! We go over everything from Trading Psychology, Technical Analysis, and Options Trading to Commodity Trading, Forex, and more!! This 50 Class series is not designed be taken in order, it is instead designed for traders to browse and pick which classes interest them. I will include the list of classes at the bottom of this page.
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The Power of the ATR
The ATR is a volatility gauge, reflecting a stock's average price movement over a specific period. It's essentially a moving average calculated using the "true range" of the stock. (Imagine a 14-day moving average on the daily chart, capturing the past 14 days' worth of price action.) A higher ATR signifies a more volatile stock, with larger daily price swings on average (think $3.20 movements). Conversely, a lower ATR suggests a calmer stock with smaller price fluctuations.
Understanding the Greeks: The Language of Options
The Greeks are a group of letters representing key metrics in options trading. Let's focus on two crucial ones:
- Delta: This reflects the rate of change in an option's price (premium) due to a $1 movement in the underlying stock price. A Delta of 0.5 implies that the option's premium will increase by roughly $.50 for every $1 increase in the stock price.
- Gamma: This measures how much the Delta itself changes with a $1 stock price movement. Think of it as an acceleration factor. A Gamma of 0.15 suggests that after a $1 stock price increase causing the Delta to rise to 0.65, the next $1 move might push the Delta to 0.80, indicating a faster rate of premium increase.
The Fusion: ATR and the Greeks Working Together
Here's where the magic happens:
- ATR Sets the Stage: The ATR provides a valuable estimate of the stock's average daily price movement. Knowing this expected range equips you to...
- The Greeks Reveal Profit Potential: By understanding how much the option's price (premium) will change based on Delta and Gamma, you can estimate your potential profit if the stock moves within the ATR's predicted range.
The Takeaway: A Targeted Approach
By combining the volatility insights from the ATR with the profit potential revealed by the Greeks, you can formulate targeted options trading strategies. This empowers you to set realistic profit targets and establish a healthy risk-reward ratio for your trades.
PB University LITE Class List
1) Trading Terminology
2) Stock Market Indices
3) Common, Preferred, and Penny Stocks
4) Diversification of Assets
5) Fundamental Analysis Made Easy
6) Technical Analysis Made Easy
7) Risk Management In The Market
8) Portfolio Management
9) How To Follow Market News
10) Trading Psychology
11) Options Explained
12) The Greeks In Options Trading
13) How To Short Sell Options
14) Covered CALLS
15) Spread Trading
16) Online Brokers for Options Trading
17) Implied Volatility Calculators & Tools
18) Protective PUTS
19) Iron Condors
20) Straddles
21) Reading Level 2
22) Taxes
23) Trading Psychology Techniques
24) The Art Of Trading
25) Becoming A Jedi In The Stock Market
26) Futures Trading Explained
27) Commodity Trading 101
28) Regulatory Environments
29) How To Become A Millionaire
30) $100K In 100 Days
31) Wash Sale Rule
32) Behavioral Finance Part 1
33) Behavioral Finance Part 2
34) 5 Charting Indicators
35) Fair Value Gap
36) Insider Trading and Market Manipulation
37) Stock Chart Types
38) Moving Averages 101
39) Base vs Precious Metals
40) Electricity Trading 101
41) Trading Brokers 101
42) 5 Trading Strategies
43) 85% Trading Rule
44) Are Win Rates A Scam?
45) Futures Trading 101
46) ATR Indicator Strategy With The Greeks
47) MACD Indicator 101
48) Bollinger Bands Indicator 101
49) Wedges, Triangles, Flags and Pennants
50) RSI Divergence 101
