Options  |  MAY 2002

Taming The Volatility Beast by Kevin Lund

Taming The Volatility Beast by Kevin Lund Take advantage of volatility and play those options. If you’ve traded options for any length of time, you’ve probably experienced the following scenario: You spot a stock that seems to have some good swings. After watching it drop for a few days, your technical analysis suggests the selling was simply profit-taking, and you feel the stock will move up soon. So you buy some call options. Over the next couple of days, however, as you watch your stock climb modestly, the value of your options drops, probably because you purchased expensive options. This kind of situation is common, and is one of the reasons many traders and investors shy away from the options market. But there are also many who trade options every day with great success because of their ability to harness volatility. Volatility is perhaps the most misunderstood component of options trading, which is why many who blindly dive into the options market do so with limited success when they start out.

by Kevin Lund