Options trading on the Russian market. How to trade options and make a profit

Some practicing traders joke that options are a financial instrument for lazy speculators. No matter how strange it may sound, this statement is truly an objective reflection of reality.

Read also

Even the most effective and profitable strategy you will have to adjust approximately once every two to three months: you need to adapt it to latest trends stock market. When trading options, we see a radically different situation.

In addition, trading with other instruments requires regular coordination of the transaction, that is, the trader constantly monitors the position of the transaction in order to make a timely decision if necessary.

If you trade options, you don't have to constantly monitor an open trade. Even if the price goes against you, you lose 10 or 15 points, there is no point in changing anything, because you already know what you need to do next.

What are the main differences between vanilla and binary options?

Firstly, in trading binary contracts, the speculator is solely the buyer, since he cannot sell anything. Secondly, vanilla options are a more versatile tool, while trading binary options is conducted on the principle of “all or nothing”.

In addition, binary options are based on one very accurate statement: “Here and now.” If a trader manages to correctly predict the movement of value, then in this case he will definitely hit the jackpot and receive a very serious profit. However, if the forecast is not accurate, you will lose part of your investment.

It is very difficult to build a measured and balanced strategy on binary options, since, as mentioned earlier, the trader acts solely as a buyer, while the broker is the seller. This is why many experts believe that trading binary contracts is, by and large, roulette.

How much investment do you need to trade options?

In many ways, the answer to this question will depend on the market in which you will trade. For example, if you prefer domestic platforms, then a modest amount of 3-5 thousand rubles will be enough for you to start trading options.

For example, you can purchase a Put option on a Sberbank share for 400 rubles. However, you should also not neglect the fact that depending on the degree of initial investment, the amount of potential earnings will change. But if you are just starting to trade options, then an amount of up to 5,000 rubles will be enough for you.

How much time should you devote to options trading?

Another fairly pressing question that is directly related to options trading, because it’s no secret that depending on the chosen instrument, the time a speculator spends at the working monitor will change.

In addition, many new traders view trading as a lucrative hobby and, therefore, cannot devote all their time to it. free time because they are busy with their main job. So, returning to the question of the relationship between time spent on trading and profit.

In order to earn approximately 20% of the initial investment, a trader needs only 15 minutes a day. In fact, 20% is several successfully closed transactions. Believe me, you can close 1-2 operations in the evening after work, and you will have stable income in the amount of 20% of your deposit.

Is it possible to cancel the purchase or sale of an option?

Much of this aspect depends on what stage you are at. If you have already made a deal, then it is no longer possible to cancel it. However, if you have not yet reached this stage, then the purchase or sale of the option can be safely canceled in the order book.

Are there losing trading strategies for options?

Often, many novice traders attribute their losses to the ineffectiveness of the chosen strategy. In fact, this is not true. Of course trading model may be more profitable or less profitable, but it cannot be unprofitable a priori.

The same cannot be said about the psychological preparation of a trader. After all, it is the speculator who may miss a certain element of the algorithm used, and as a result he will suffer losses. If you want to have more specific information about a strategy, then you need to first familiarize yourself with the statistics of the trading system. And, of course, don’t forget to test strategies before using them.

Can an options trader find a job at a financial company?

In Russia, an option is far from the most popular trading instrument. That is why the number of truly successful speculators who would thoroughly master the option is extremely limited. In this regard, if you demonstrate stable and productive options trading, then you can rest assured that there is a place for you in any financial services company.

In addition, one should take into account the fact that a trader is, first of all, a trader. In other words, a person who carries out transactions. Not every successful trader is well versed in the intricacies and specifics of trading instruments.

If you master options, you will sooner become an engineer than a speculator, and this, in turn, opens up completely new, and most importantly, profitable prospects for you. Options engineers specialize not in concluding trading operations, but in creating structured products that are in one way or another related to contracts.

Investment companies are experiencing a shortage of personnel, especially the shortage of option engineers. In general, this is not surprising, because in Russian universities There are no departments dedicated to options. Therefore everything modern specialists– these are people who have mastered the specifics of options through webinars and their own efforts.

This is a combination of various options, and sometimes underlying assets, in your investment portfolio to achieve your goals and objectives. Depending on the behavior of the market, several types of strategies can be distinguished: bullish, bearish and neutrality strategies (when the price of an asset stands still). Bullish strategies are used when the market is expected to move up, bearish strategies are used, respectively, when the market moves down, and neutral ones when the price stays the same.

For greater clarity, we will use graphs.

Let's look at the chart of the first strategy and find out what you should pay attention to when studying the charts.

At the top of the picture we see our portfolio, that is, what instruments we bought or sold. The columns we need are the following: option type (call or put), strike (exercise price), quantity, option premium (option cost).

When describing the strategy, we will use the concept of “break-even point”. This is the level of strike and underlying prices in the spot market at which our strategy begins to make a profit. The loss zone is the price level at which our positions are unprofitable.

To simplify the understanding of the charts, the underlying asset of the options discussed in the examples will be a futures contract for Gazprom shares.

Let's start our acquaintance with strategies with the simplest.

Part 1 (Options Trading Strategy):

1. First options trading strategy.

Buying a call option (Long call).

As we remember, call option- This is the buyer's right to buy a product at a pre-fixed price. In what situations is this strategy used?

Buying a call option is used in cases where the investor is confident that the price of the underlying commodity on the spot market will go up. You buy an option, and the higher the price of the underlying asset when the trade is executed, the greater your profit. We have already covered all this in our lessons, and now we will try to figure it out on a graph with a specific example.

Chart 1. Buying a call option

The chart shows the purchase of a call option on a futures contract for Gazprom shares with a premium of 1,684 rubles. The option strike is 14,000 rubles. Our strategy will make a profit if the price of the underlying asset rises above the strike price by the amount of the premium, that is, the point of 15684 (14000+1684) rubles will be the break-even point.

Your potential profit is unlimited. The higher the price of the futures, the higher the profit will be. Your losses are limited only by the cost of the option, that is, 1,684 rubles.

2. Second options trading strategy.

Selling a call option (Short Call)

Sell ​​call option should be done if you are confident that the price of the underlying asset on the spot market will go down. You sell a call option, receive a premium, and if the price of the asset falls, the deal is not executed. Let's look at the graph.

Chart 2. Selling a call option

You sell the same option as in the previous case with a strike of 14,000 rubles and a premium of 1,684 rubles. If the price of the underlying asset goes down and on the execution date of the transaction is lower than the execution price, the buyer will not execute the contract. Our profit in this case is equal to 1684 rubles, the premium for the option.

You need to be very careful when using this rather primitive strategy. The fact is that our profit is limited by the cost of the option, while losses are not limited by anything. What does it mean? If the price of the underlying asset begins to rise, then we will enter the zone of unlimited losses.

3. The third option trading strategy.

Buying a put option (Long Put).

Put option is the right of the buyer to sell the commodity to the seller of the option at a pre-agreed price in the future. Thus, the meaning of this strategy is to buy a put option and sell the underlying asset at the expiration of the transaction, when the price of the underlying asset is lower than the strike contract price. Let's look at the graph.

Chart 3. Buying a put option

You assume that the price of Gazprom shares will fall in the future, buy a put option with a strike = 14,000 rubles and pay a premium of 867 rubles. Starting from the price of the underlying asset = 13,133 rubles, and below is your profit (14,000 - 867). If the price rises above this level, then your loss will be only the cost of the option, i.e. 867 rubles.

A very good strategy for beginners in the derivatives market. Your potential profit is unlimited, and your potential loss is limited by the price of the contract.

4. The fourth option trading strategy.

Selling a put option (Short Put).

This strategy is used when the price of the underlying asset of the option is expected to increase in the spot market (the option buyer is unwilling to execute the transaction at expiration).

Chart 4. Selling a put option

Let's say you think that the price of Gazprom shares will go down, and you sell a put option with a strike = 14,000 rubles with a premium of 867 rubles. If the price of the underlying asset rises above 13,133 rubles (14,000-867), then the option is not exercised and you make a profit in the amount of the option premium. You need to be very careful when using this strategy. Your losses are unlimited, and if the price of the underlying asset goes down, you could lose a lot. Your profit, as mentioned above, is limited by the option premium.

These are the 4 most basic strategies consisting of buying or selling only one instrument. Let's move on to something more complex. To implement the following strategies, we will need to add two options contracts to our investment portfolio.

5. Fifth option trading strategy.

Bull Call Spread.

This strategy is used if you are confident that the price of the underlying asset will go up, but growth will be limited.

This strategy involves both buying and selling a call option. Options must have the same expiration date but different strike prices. The strike of the purchased option must be less than the strike of the sold option.

Let's look at the schedule.
Chart 5. Bull call spread

You buy a call option with a strike = 10,000 rubles at a price of 3,034 rubles, thinking that the futures price at the time the transaction is executed will not be more than 15,000 rubles. To get back some of the money you spent on the option, you sell another call option with the same expiration date but a different strike price. Of course, the strike must correspond to your expectations regarding the price of the asset in the spot market at the time the trade is executed. In our case, it is 15,000 rubles. Thus, you reduce the cost of your position from 3034 to 2400 rubles (the difference between the premium received for the sold option and the funds spent when buying the option: 3034-712 = 2322 rubles).

If the price of the underlying asset rises, your profit will start at the point of 12,322 rubles (strike of the purchased option + funds spent: 10,000 + 2,322), and is limited to the point of 15,000 rubles (strike of the sold option).

A loss with this strategy will occur if the price of the underlying asset does not increase. It is limited only by the premium paid for the purchased option, minus the premium paid to you for the contract sold, that is, 2,322 rubles.

6. Sixth options trading strategy.

Bear call spread. Bear Call Spread

The strategy is roughly the same as a bull call spread, but it is used when the price of the underlying asset is expected to decline moderately and the decline is limited.

A call option with the same expiration date but different strikes is bought and sold at the same time. The difference with the previous strategy is that it is necessary to sell a call option with a strike price lower than that of the option that is being purchased.

You can see this strategy on the chart.

Chart 6. Bear call spread

We sell a call option with a strike of 10,000 rubles at a price of 3,034 rubles, hoping that the price of the underlying asset will not increase. In order to hedge our position, we buy a call option with the same expiration date, but with a higher strike.

The chart shows that we bought a call option with a strike of 15,000 rubles at a price of 712 rubles. As a result, our total premium will be 2322 (3034-712) rubles.

This is ours maximum profit provided that the price does not rise above 10,000 rubles. Losses will begin at the point of 12,678 rubles and above (strike of the sold, minus the strike of the purchased, minus the total premium: 15,000-10,000-2322 = 2,678 rubles). That is, losses are limited and the maximum is 2,678 rubles.

7. Seventh options trading strategy.

Bull put spread. Bull Put Spread

The strategy is similar in meaning to the previous ones. It consists of selling an expensive put option with a large strike in the hope that the price of the underlying asset will rise. In order to hedge against a price drop, we buy a put option with the same expiration date as the one sold, but with a lower strike price.

Let's look at the graph.
Chart 7. Bull Put Spread

As can be seen in the chart, a put option with a strike price of 15,000 rubles was sold for 3,287 rubles. For insurance, we bought a cheaper put option for 609 rubles, but with a strike price of 10,000 rubles. Total, the net premium is 2678 (3287-609) rubles.

The strategy will bring profit if the price of the asset does not fall below the point of 12,322 (15,000 - 2,678) rubles. Anything below this price is our loss. It is limited and in the worst case scenario it will be 2322 (15000-10000-2678) rubles.

8. Eighth options trading strategy.

Bear put spread. Bear Put Spread.

The strategy is used if you have confidence that the market will fall before a certain point. It consists of buying an expensive put option with a large strike. To reduce the cost of the position, the same put option is sold, but with a lower strike. The strike is selected at the price level on the spot market at the time of expiration. The meaning is as follows: the option is sold in order to receive a premium, but if there is a strong fall, we also limit our profit, so the strategy should be applied only when there is confidence that the fall will not be strong! Otherwise, it is better to use the Buy Put Option strategy.

Let's look at an example.

Chart 8. Bear put spread

We bought a put option with a strike = 15,000 rubles for 3,287 rubles. Our assumption is that the price of the asset will fall and stop at approximately 10,000 thousand rubles. Therefore, we sell the same put option with a strike = 10,000 rubles. The greater the difference between the strikes, the greater the likely profit when the market falls and the higher the costs of opening a position, since an option with a lower strike can be sold for a smaller amount.

So, our expenses when opening positions amounted to 2678 rubles (3287 - 609).

The strategy will bring us profit if the price of the underlying asset is 12,322 rubles (15,000-2,678). The maximum profit will be equal to 2,322 rubles (the strike of the purchased put, minus the strike of the sold put, minus the total premium, with the price of the underlying asset equal to the strike of the sold put (10,000 rubles)).

Everything below 12,322 rubles is our loss. They are limited and will amount to the amount of the premium paid (2,678 rubles).

Part 2 (Options Trading Strategy)

1. Straddle, purchase (Long Straddle)

The strategy is used in cases where you are confident of a strong movement in the market, but do not know in which direction this movement will be. The strategy is to buy Put and Call options with the same strike price and expiration date. The strike price is generally equal to the price of the underlying asset in the spot market at the time the option contract is entered into.

Let's consider all of the above using an example:

Chart 1. Straddle buy strategy

As we can see in the chart, we bought call and put options with a strike = 12,500 rubles. The total premium for the two options was 2950 rubles (1428+1522).

The strategy will bring profit if the futures price rises above 15,450 rubles (strike 12,500 + total premium paid 2,950) or if the price falls below 9,550 rubles (strike 12,500 - premium 2,950).

Losses are limited by the premium, that is, if the price of the underlying asset does not fall within the above limits, our maximum loss will be 2,950 rubles when the price of the underlying asset is 12,500 rubles.

2. Straddle, sale

The strategy is used if you expect that the price of the underlying product will fluctuate around the strike. The strategy consists of selling a call and a put option with the same strikes and expiration dates.

Chart 2. “Straddle sell” strategy

We sold a call option and a put option with a strike price of RUR 12,500. Our profit (premium paid by the buyer) amounted to 2958 rubles (1444 + 1514). If the price of the underlying asset at the time of execution of the transaction rises above 15,458 (strike 12,500 + premium 2,958) rubles or falls below 9,542 (12,500 - 2,958), we will incur losses. As you can see in the chart, the profit zone looks like a small triangle. It is limited only by the premium paid at the time of conclusion of transactions.

Losses, as you understand, are not limited by anything. If the price crosses the above boundaries in any direction, the loss can be very serious.

3. Strangle, purchase

The strategy is used if you believe that the price of the underlying asset in the spot market will either rise or fall. It consists of buying a put option and buying a call option. The options must have the same expiration date and the call option strike must be higher than the put option strike. This strategy differs from the straddle buying strategy in that due to different strikes, the cost of opening a position is significantly reduced. At the same time, the likelihood of achieving a positive result decreases, because The loss zone will be much wider than in the strategy of buying a straddle option.

Chart 3. Strangle buy strategy

As we can see in the chart, put and call options were purchased.

Call option strike = 15,000 rubles, put option strike = 10,000 rubles. The total premium paid is 1279 rubles. (692+587). The strategy will bring us profit if the price of the underlying asset is equal to:

1) Call option strike + premium = 15,000 + 1279 = 16279 if the price goes up;
2) Put option strike - premium = 10000 - 1279 = 8721 if the price of the underlying asset goes down.

Losses when using this strategy, in the event that none of these options are exercised, are limited only by the premium, that is, 1279 rubles.

4. Strangle, sale

This strategy is used when the investor is confident that the price of the underlying asset will not change in the future or will change only slightly.

It consists of selling a call option and a put option with the same expiration date, but with different strikes. The call option strike must be higher than the put option strike. Strikes should be chosen based on your own opinion about the range in which the underlying asset will be traded. We select the call option strike at the upper level of the expected price range of the underlying asset, and the put strike at the lower level.

Graph 4. Strangle sell strategy

Let's look at the schedule. We sold two options: a call option with a strike price of 15,000 rubles and a put option with a strike price of 10,000 rubles. At the time of selling the option, we receive a profit, which is the sum of the premiums for the two options sold. 692 rubles for a call option + 587 rubles for a put option. Total, our profit = 1279 rubles.

As we can see in the chart, the profit zone begins with the asset price = 8,721 rubles and ends when the price rises to 16,279 rubles. The bottom point of profitability is calculated by subtracting the total premium for sold options from the put option strike price: 10,000 - 1,279 = 8,721 rubles. The upper limit of the profitability zone consists of the call option strike and the total premium: 15,000 + 1,279 = 16,279 rubles.

It is necessary to understand that if any of our options are nevertheless exercised, then our profit will be less than the amount of the total premium.

Everything that is beyond the profit zone is our loss, which is completely unlimited. Therefore, this strategy is classified as risky.

5. Strip

The strategy is used if you expect the price to move and most likely fall.

It consists of purchasing a call and two put options with the same contract expiration date, and the strike prices may be the same or different.

Here we should remember the straddle strategy, where we bought puts and calls. This strategy is also focused on the fall and rise in the price of an asset. The strip strategy differs from buying a straddle in that we are buying two put options. Thus, a price drop is more likely.

Let's look at the graph:

Chart 5. Strip Strategy

As we can see in the chart, a call option with a strike of 12,500 rubles was purchased at a price of 1,458 rubles, and two put options with the same strikes, but at a price of 1,528 rubles. In total, our loss at the time of opening positions is 4514 rubles (1458 + 1528×2).

Our strategy will bring us profit if the price falls below 10,243 rubles (12,500 -4514/2) or rises above 17,014 rubles (12,500+4514). However, since we have two put options, our profit will be higher if the price goes down.

Our loss is limited by the amount of the premium paid (4514 rubles) and will occur if at the time of execution of the transaction the price is between the points 10243 and 17014 rubles.

6. Strap

The strap strategy is a mirror of the previous strategy. It is used if it is not known exactly where the price of an asset will go, but there is a high probability that it will go up. We buy two call options and one put option with the same expiration dates, but with different or the same strikes.

Chart 6. Strap strategy

On the chart you can see that a put option was purchased with a strike of 12,500 rubles at a price of 1,528 rubles. and two call options with the same strike at a price of 1,458 rubles. Our profit will start at the point of 14757 (12500+4514/2) rubles if the price goes up and 7986 rubles (12500 - 4514) if the price goes down.

Our losses are limited to the price paid to purchase the options (1528+1458×2 = 4514). They will appear if all options turn out to be useless at the time of transaction execution. In this case, the maximum loss will be at the point of 12,500 rubles.

7. Reverse bull spread. Bull Backspread

The strategy is applied if you are confident that the market will rise or, at least, not fall.

Since you are confident that the price of the asset will rise, you buy a regular call option and also sell a put option. The point of selling a put is to recoup the cost of purchasing the call. The position may have no cost.

Let's look at the chart:

Chart 7. Inverse bull spread

We buy a call option with a strike of 15,000 rubles at a price of 682 rubles and at the same time sell a put option with a strike of 10,000 rubles at a price of 582 rubles. That is, our losses at the time of the transaction will be only 100 rubles (682-582).

The strategy will bring us profit if the price of the asset rises above 15,100 (call strike + total option premium) rubles. Everything below this value is a loss zone. Losses in this strategy, as well as profits, are not limited. If the asset price drops to 10,000 rubles, our loss will be 100 rubles. If the price drops below 10,000 rubles, unlimited losses will increase in proportion to the decrease.

8. Reverse bear spread. Bear Backspread.

The meaning is approximately the same as in the previous strategy, but in this case you need confidence that the price of the underlying asset will fall. We buy a put option and sell a call option with the same expiration dates. The strike of the purchased put must be lower than the strike of the sold call.

Chart 8. Inverse bull spread

In this case, we bought a put option with a strike of 10,000 rubles at a price of 582 rubles and sold a call option with a strike of 15,000 rubles at a price of 682 rubles. In total, our profit at the time of entering into the position was 100 rubles.

From the point of 15100 (15000 + 100) rubles and above, our call position will bring us unlimited losses. From the point of 10,000 rubles to the point of 15,000 rubles, our profit will be equal to the premium (682-582 = 100 rubles). And finally, everything below the 10,000 point (the strike price of the sold call) will become our profit. It is not limited by anything, which means that the lower the price of the asset, the greater the profit.

9. Proportional call spread

The strategy is applied if you are confident that the market will grow slightly to a certain level. You sell two call options with a strike price around this level and buy one call option with a lower strike price.

The idea is this: if the price falls, by selling options, we will insure our position of buying a call; if the price rises to the strike price of the sold options, we will make a profit; if it grows above this level, we will lose money.

Let's look at the graph:

Chart 9. Proportional call spread

We are selling two call options with a strike of 18,500 at a price of 1,416 rubles each. At the same time, we buy one call option with a strike of 17,000 rubles at a price of 2,317 rubles. Our profit at the time of the transaction = 515 rubles (1416×2-2317). Let's look at the chart: if the price of an asset falls, we only receive a premium of 515 rubles, if the price rises to the strike price of the purchased call, then we begin to receive additional income. At the point of 18,500 rubles (strike of sold calls), our profit will be maximum: 2015 (18,500-17,000+515) rubles. Then, as the price of the asset increases, the profit will decrease and at the level of 20,515 rubles (18,500 + 2015) we will begin to have unlimited losses.

10. Proportional put spread

This strategy is exactly the opposite of the previous one. It is used when the price fluctuates and is likely to fall to a certain level. This strategy requires you to buy one put with a higher strike and sell two with a lower strike. Thus, we insure our position against price increases, but at the same time, in the event of a significant drop, our losses are not limited in any way.

Chart 10. Proportional put spread

We bought a put option with a strike of 12,000 rubles at a price of 1,540 rubles. and sold two puts with a strike price of 11,000 rubles at a price of 894 rubles. At the time of the transaction, our profit amounted to 248 (894×2-1540) rubles.

The graph shows that if the price rises, our profit will be at the level of the premium received during the transaction (248 rubles).

From the level of 12,500 rubles (strike of sold puts), our profit increases and at the point of 11,000 rubles (strike of purchased put) it will be maximum (12,500-11,000-248 = 1,748 rubles). The profit zone will end at 9252 (11000-1748) rubles. The loss zone begins below. In the event of a further price drop, they are unlimited.

Part 3 (Options Trading Strategy)

1. Proportional reverse call spread. Call Ratio Backspread.

This strategy applies if the price of the underlying asset can either fall or rise significantly. It consists of buying two call options and selling a call option, but with a lower strike.

The meaning of the strategy is as follows: you sell an expensive option and use the money received from the sale to buy several cheap ones.

Chart 1. Proportional reverse call spread. Call Ratio Backspread.

We bought two cheap call options with a strike of 15,000 rubles and sold one expensive one with a strike of 10,000 rubles. Our profit when opening a position was 1623 rubles (2977-677×2).

Now let's look at the graph. When the price of the sold underlying asset is 10,000 rubles, our sold call option goes into the money. In other words, we are starting to lose our premium. At the point of 11623 rubles (10000 +1623) we enter the loss zone. At a level equal to 15,000 (strike of purchased options), we will receive the maximum loss, since the call we sold has already gone into the money, and the calls we bought have not yet begun to generate income. The maximum loss is equal to 3377 rubles (Strike purchased - Strike sold - Total premium = 15000 -10000 -1623 = 3377).

When the asset price rises above 15,000 rubles, the purchased options go into the money and profit appears. The break-even point is at the level of 18377 (15000+3377) rubles. Above this level, unlimited profit begins.

2. Proportional reverse put spread. Put Ratio Backspread.

The strategy is applied if a price change is expected, and its fall is more likely. If the price does not change, then our losses are limited.

The strategy consists of selling one expensive put option and buying two cheaper options with a low strike price.

Let's look at the chart:

Chart 2. Proportional reverse put spread. Call Ratio Backspread.

As we can see in the chart, we sold a put option with a strike of 15,000 rubles at a price of 3,285 rubles. At the same time, two puts with a strike of 10,000 rubles were purchased at a price of 585 each. At the time of opening a position, our profit is 2115 (3285-585×2) rubles.

Let's pay attention to the profit curve. If the asset value is more than 15,000 rubles (strike of the sold option), we are in the black; then, when the price of the asset decreases, the profit decreases, and, having reached the point of 12,885 rubles (Strike of the sold put - Cumulative premium), we enter the loss zone. The maximum loss occurs when the asset price is equal to the strike price of the purchased options = 10,000 rubles. This is due to the fact that the expensive sold option went into the money, and the purchased puts are not yet profitable.

Maximum loss = Strike of sold put - Strike of purchased puts - Total premium = 15,000 - 10,000 - 2115 = 2885 rubles.

With a further reduction in price, we enter the profit zone at the level: 10,000 - 2885 = 7115 rubles. The lower the price goes, the higher the unlimited profit will be.

3. Butterfly purchase

The strategy is applied if the price of the underlying asset should remain in the current range. The main objective of the strategy is to insure our position against a price drop and limit losses.

To do this, buy an expensive call option with a small strike and a cheap call option with a large strike. At the same time, two call options with a medium strike are sold. By selling call options we insure our losses.

Let's see the graph:

Chart 3. Butterfly purchase

A call option with a strike = 10,000 rubles and a call option with a strike = 15,000 rubles were purchased. Two call options with strikes = 15,000 rubles were sold. The total loss for the entire position was 820 rubles (3022+694-1448×2).

As soon as the price of the underlying asset rises to 10,000 rubles, our loss begins to decrease and at a price of 10,820 rubles we reach the break-even point (10,000+820).

The strategy will bring us maximum profit at a strike of 12,500 (strike of sold options) and will be equal to 1,680 rubles (12,500-10,820). After the price rises above 12,500 rubles, the profit will decrease at a price of 14,800 (12,500+1,680) rubles. we will again enter the zone of losses, which are limited by the premium paid (820 rubles).

Of course, this strategy is designed to limit losses when the price falls, but, unfortunately, it also limits our profits.

4. Butterfly sale

The strategy is used if the price of the underlying asset will rise or fall (high volatility).

To implement the strategy, we buy 2 call options with a medium strike, sell a call option with a small strike and sell a call option with a large strike.

Let's look at the chart:

Chart 4. Butterfly sale

As you can see in the graph, our profit when performing the operation is equal to 820 rubles (3022+694-1448×2). With the “butterfly sell” strategy, the maximum profit is equal to the premium received as a result of the transaction.

Further, when the price of the asset rises to the strike price of the expensive sold call option (10,000 rubles), the profit begins to decrease, and, as a result, when the asset price is 10,820 rubles (10,000+820), we enter the loss zone. The loss zone is the triangle at the bottom of our chart. The peak of the triangle is the maximum loss of this strategy. In our case, they will be equal to 12500 - 10820 = 1680 rubles. Then, when the price rises to the level of 14,180 rubles (12,500+1,680), we will again enter the profit zone, which is also limited by the received premium of 820 rubles.

So, this strategy limits our profit to the premium received when making options transactions. It also limits our loss in case of low volatility and the price goes out of the range.

5. Condor purchase

This strategy is very similar to the butterfly buying strategy. The only difference between them is that there we sold two options with the same strike, and here we sell two options with different strikes to increase the percentage of the price value “hitting” the profit zone.

According to this strategy, you need to buy an expensive call with a small strike and a cheap call with a large strike. At the same time, you need to sell two options with average strikes of different sizes.

In this case, our loss on the premium will be higher than in the “buying a butterfly” strategy.

Let's look at the chart:

Chart 5. Condor purchase

As we can see in the chart, a call option with a strike of 8,000 rubles was purchased at a price of 4,696 rubles, a call option with a strike of 17,000 rubles was purchased at a price of 462 rubles. It also follows from the chart that two call options, one with a strike of 10,000 rubles at a price of 3,022 rubles, and the second with a strike of 15,000 at a price of 694 rubles, were sold.

In total, our total loss at the time of the transaction is 1,442 rubles (4,696 + 462 - 694 - 3,022).

The strategy will begin to make a profit after the price of the underlying asset reaches a value equal to the strike of the expensive purchased option + total premium (8000+1442), that is, at a price level of 9442 rubles.

Maximum profit = 10,000 - 9,442 = 558 rubles.

If the price rises to 15,558 rubles (15,000+558), then our strategy will begin to generate losses.

So, this strategy is, of course, very similar to the “buying a butterfly” strategy, but the potential profit is significantly reduced by selling options at different strikes, and the chance of making a profit is increased.

Condor sale

The strategy is similar to the butterfly sell strategy. The difference is that to increase the chance of the asset price falling into the profit zone, we buy options with different strikes. Accordingly, our potential profit is also less.

Let's look at the chart:

Chart 6. Condor sale

The graph shows that when performing transactions with options, we received a premium of 1,442 rubles. When the price rises to the lower strike level = 8,000 rubles, our profit begins to decrease and, having reached the value of 8,000 + 1,442 = 9,442, we enter the loss zone.

Maximum loss = 10000 - 9442 = 558 rubles. As soon as the asset price level reaches the upper strike of the purchased call option (15,000), losses will begin to decrease, and at the level of 15,558 (15,000+558) rubles we will enter the profit zone.

So, according to this strategy, losses are limited, but our profits are also limited by the amount of the premium.

Part 4 (Options Trading Strategy)

By using combinations of different options we can create synthetic underlying assets.

It is necessary to use an option and an underlying asset - a futures.

1. Synthetic long put option

This strategy replaces buying a put and consists of buying 1 call option and selling the underlying asset. It is convenient when there is no liquidity at the desired option strike (that is, such options are not bought or sold on the exchange).

Let's look at the strategy on a chart:

Chart 1. Long put option

As you can see in the figure, we bought a call option with a strike of 12,500 rubles and at the same time sold the futures, which is the underlying asset of the call, at a price equal to its strike. Thus, we received a put option with a strike price of 12,500 rubles (see chart).

If the price of the underlying asset (that is, our futures) rises, then we receive losses in the amount of the call option premium; if the futures price falls, then after the level of 11,039 rubles (option strike minus option premium), we receive unlimited profit. As you can see, this combination is exactly identical to the strategy “buying a put option (lesson “option strategies”, first part, “buying a put option.” - editor’s note).

2. Synthetic long call

This strategy replaces the purchase of a call option and consists of buying a put option and purchasing the underlying asset. It is used when it is not possible to buy a call option.

Let's look at the chart:

Chart 2. Synthetic call option

We purchased a put option with a strike price of 12,500 rubles and at the same time bought futures.

If the price rises, the higher it rises, the greater our profit will be. If the futures price goes down, the only loss will be the premium paid for the put option.

The profit zone begins, as in the call option strategy, from the strike + premium level, that is, from the point of 13973 (12500+1473) rubles.

3. Synthetic short put

This strategy is formed by selling a call option and buying the underlying asset. It is used when the market is growing or not falling.

Chart 3. Synthetic Short Put

We sell a call option with a strike price of 12,500 rubles and at the same moment buy a futures contract. As we can see in the chart, our profit is limited by the call premium, and the loss is not limited by anything. The loss zone begins at the futures price level of 11,039 (12,500-1,461) rubles. If the price decreases, our loss, as well as when selling a put option, is unlimited.

4. Synthetic short call

This synthetic option is formed by buying a futures contract and selling a put option. This strategy is applied, as in the case of selling a call option, when the market falls.

Attention to the chart:

Chart 4. Synthetic short call

We sold futures at a price of 12,451 and a put option with a strike of 12,500 rubles (the difference is insignificant and does not matter). The premium for the put option was 1,492 rubles. If the market falls, this will be our profit. If the market grows, after the level of 13992 (12500+1492) rubles, an unlimited loss will begin.

To make it easier to work with options, you need to create the Options tab ( How to create a bookmark can be found in the instructions for setting up QUIK, at the beginning of the article at the link QUIK settings).

Setting up options in QUIK

1) Go to the table -

Selecting Accepted Parameters and Tools

At the top of QUIK open the section(Communication - Lists)

In the window that opens "Selecting Accepted Instruments" make sure that the boxes next to “FORT Options” are checked.

There are no such options in the demo version of QUIK..

To work with options you need 2 tables: "Current parameter table" And "Options board".

The first table is the Current Options Table - it is clear and familiar to many, and the second table is more interesting - this is the Options Board.

2) Create a Current Parameter Table

“Current table of parameters” - designed to display current data on option contracts.

Current parameter table

At the top of QUIK Open the section(Tables – Current table)

From the window ( Available tools, section “FORT Options”), select the option we need and left-click on it to transfer it to the window (Row Headers), it is recommended to select not individual options, but entire groups. To do this you need from the section "Available options" move to section "Row Header" the whole group.

In the same way we transfer the parameters we need from the window ( Available options) out the window ( Column Headings).

Column Headings

1) Strike price – future execution (option exercise price)
2) Option type – shows the type of option: Call) or Put)
3) Maximum transaction price – the maximum transaction price for an option during a trading session.
4) Minimum transaction price – the minimum transaction price for an option during a trading session.
5) Last trade price – the last (current) option trade price for the trading session.
6) % change from closing – the parameter shows changes in the current price from yesterday’s closing price as a percentage.
7) Turnover in money – the turnover of money under an option contract during a trading session.
8) Number of transactions for today – the number of transactions on an option contract during the current trading session.
9) Number of open positions – the total number of open positions for the option ( this indicator shows how many options contracts are bought and sold).
10) BGO for uncovered positions – the required collateral amount for the seller of an uncovered option contract is always displayed in rubles.
11) BGO for covered positions – the required collateral amount for the seller of a covered option contract, always displayed in rubles.
12) Number of days until maturity – the number of days until the option contract matures (expiration).
13) Maturity date

Click Yes to create the table

The maturity date of our contract is also very important point, which needs to be tracked.

Basic Collateral is used only for selling options, it is not available to buyers.

Just like for futures contracts, prices for some options can be displayed not only in rubles but also in points.

Important:

1. The collateral amount is taken exclusively from the seller of the option; the buyer has no collateral.
2. A covered option is a sold option that is hedged by a futures contract.

We must remember what a Covered and Uncovered option is, because the Security Collateral is taken from the seller of the option.

Covered option

Example No. 1

We simultaneously have a sold Call option and a purchased futures contract. When the futures price increases, we receive income from the future, and a loss from the option. This means that with such a set of instruments, the option is considered covered.

In this case, we sold a Call option and simultaneously bought a futures contract. Selling a Call option implies that the price will not rise. However, the price begins to rise, and accordingly we receive a loss on the option, but at the same time we receive a profit on the futures. We paid the option premium for the option because we sold it, so the option is 100% covered with a profit equal to the option premium.

Example No. 2

We simultaneously have a sold Put option and a sold futures contract (we have a fall futures contract). When the futures price falls, we receive income from the future, and a loss from the option. This means that with such a set of instruments, the option is considered covered.

The situation is similar to that of the Call option. We sell the Put option and at the same time sell the purchased futures contract (sell futures). If the price of the asset begins to decline, then we receive income from the futures, and a loss from the option, plus profit in the amount of the option premium, in which case the option is also covered.

Not covered option

An uncovered option is an option sold without hedging (i.e. without purchasing the futures).

Example 1

We only have a sold Call option. If the price of the underlying asset rises, the seller will incur losses. This option is considered uncovered.

Example 2

We only have a sold Put option. If the price of the underlying asset falls, the seller will suffer losses. This option is considered uncovered.

An uncovered option is much worse for trading (i.e. we sell options without hedging (for example, without a purchased futures contract)). It’s worse because we only earn a profit, but do not limit the losses on the option itself. Such an option is considered not covered; therefore, the collateral here is much higher than with a covered option.

Sorting options contracts

Sorting by maturity (Sorting by Strike)

The maturity date is the expiration date of the option contract.

Some futures contracts may have the same options with different delivery dates. As a rule, options with delivery in a month or in a quarter can be traded at the same time.

For more convenient work with the table, it is recommended to use sorting by Strike. To do this you need to use the word “Strike” right-click and select "Sort by [Strike]".

You can also sort by expiration date, etc.

Sort by maturity

After this, all options are sorted by Strike value, and a “blue arrow” will appear in the Strike column, which will indicate the direction of sorting.

Options board

1) Working with the “quote window” of option contracts (working with orders, deals, charts) is similar to working with stocks or futures contracts.
2) When working with options, you need to remember that almost all options have low liquidity, so charts and quote windows may not look quite familiar.

Options board – this table designed for operational analysis of supply and demand for options. Typically, the Options Board only analyzes options with the same delivery date and the same underlying asset (such as a futures).

To create a table

At the top of QUIK Open the section

An important point when working with options is liquidity. The liquidity of some options is quite low; this requires special attention.

Options trading

Example of stock options trading

Example of insurance with an option (Covered option)

The situation on the stock market is negative, shares have fallen in price and they are starting to be bought. This dynamic may continue.

For example, Sberbank shares began to grow, we assume that after the growth a correction will follow and the correction may be quite strong, so we have a desire to insure ourselves against the risks of a possible fall (the shares were purchased within the range of 92 - 94 rubles, we assume that growth will continue to 100 rubles, but the asset may correct below 90 rubles).

An option will help us protect ourselves from a correction. If the asset price declines, we will make a profit from the option contract. Counting on continued further growth, we want to receive compensation for profits while being in the market. In this case, this is an example of using an option contract (an example of risk insurance).

How to do it?

Create a table

At the top of QUIK Open the section(Trading – Options – Options Board)

Select the instrument of interest in the table

Using the options code, we select “Sberbank” - the nearest option contract that expires this month - and add a whole group.

Then add the necessary parameters.

1) Open position Call
2) Trades for today Call
3) Demand Call
4) Call offer
5) Theor. Price Call
6) Strike
7) Theor. Put price
8) Demand Put
9) Put clause
10) Trades for today Put
11) Open position Put
12) Volatility
13) Date of execution
14) Before execution

Click YES - the options board appears

The option price is calculated based on three main indicators

1) The price of the underlying asset.
2) Strike price level.
3) Number of days until expiration.

These three components determine the theoretical price of the option. If this is possible, it is advisable to sell the option a little above the Theoretical price, and naturally buy a little below the theoretical price, in this case the profit will be greater.

Volatility – shows trading activity in a particular instrument.

An example of speculation with options (Non-covered option)

In the case of speculative actions on options, the transaction is completed in a similar way. If we want to purchase an option, for example, for 200 rubles. (Press the price 200 – set it to 1 – press the buy button – press Yes), appear in the purchase queue. In the same way, the order can be displayed on the price chart.

As for speculation, in this case it would be more interesting to consider the 9500 Call option (there is quite active market movement here on the way to these levels) - double-click with the right mouse button - the order book will open.

On the approach to the Strike level of 9500 (this price is an option barrier), from this level some corrective actions may be observed. Those. we see from the level of the maximum value, when the price approaches the level of 95 rubles. there is a sale of these contracts in the hope that this level will not be passed, and then we see that the cost of the options changes by 100 rubles.

Options board

The options board is similar to a regular book, but is more informative based on current data.

In the middle column is the Options Strike (insurance for our portfolio is 92.5 rubles) - highlighted in gray. In this case, we are interested in the Put option. It is at these levels that sufficient concentration is concentrated a large number of options.

Those. As long as this option is near the money, its price is quite realistic to purchase; it is still quite cheap.

Chart of this option.

For 200 rubles. we can insure the purchase of 100 shares of Sberbank, because one option corresponds to one futures, and a futures is equivalent to 100 shares. This is an example of insurance.

Read more about the “Options Board”

How to work with this table?

The “Options Board” is divided into three colors:

Green – Call options
Gray – strike
Red – Put options

The options board allows for operational analysis, i.e. see at what prices Call options are sold and bought, see at what prices Put options are sold and bought, and build various option schemes accordingly.

Example

The trading participant decided to buy a Call option with a strike price of 20,000 and at the same time sell a Call option with a strike price of 22,000

1. Pay attention to the “Strike” column and find the value 20,000 in it
2. Pay attention to the “Call Offer” column in the same line
3. Look at the line with the strike price of 22,000 in the “Demand Call” column

In this case, a Call option with a strike of 20,000 can be bought for 608 rubles, and a Call option with a strike of 22,000 can be sold for 104 rubles.

Option glass. Entering an application.

You can buy or sell an option through Quik just like you would a stock or futures. Double-click on the desired option in the options board. The order glass pops up. By double-clicking on the order book, the order entry window pops up.

The principle of executing orders is quite simple. The same order book, the same table of current quotes and the same actions aimed at buying or selling, which falls into the queue and is subsequently executed.

Positions on client accounts

You can view your own current open options positions in the “Positions on client accounts” table. In the top QUIK menu, open (Trading – Futures – Positions on client accounts)

1) “Instrument code” – displays the option, which shows the number of open positions
2) “Current net position” - shows the number of option contracts for which the position is open (a minus in front of the number of contracts will mean open positions for the sale of futures)
3) “Variation margin” - displays the accrued variation margin (in rubles) since the last clearing

Options positions are looked at in the same way as we look at futures contract positions. Our option contract code and the number of net current positions will be displayed here.

How to successfully trade binary options: do you want to make profit on binary options and not be among the unfortunate traders? 9 valuable tips based on real trading experience.

Over the past 5-7 years, the binary options market has developed by leaps and bounds, and today it is BOs that provide the opportunity to earn a lot in a short time. But big profits come with the risk of losing everything; beginners usually don’t pay attention to this.

Today we will figure out whether it is worth trading binary options and how to increase the chances of success.

What prevents new traders from making money?

Beginners make the same mistakes; they prevent trading from being profitable.

Among the most common, we note: a careless attitude towards trading (like playing in a casino), a lack of understanding of the key differences between BO and the Forex market, the inability to choose a reliable broker, neglect of training and study of trading conditions, as well as the conditions for working out bonuses.

Taken together, all this leads to disappointment in the binary options market.

We offer the opportunity to avoid these mistakes and start earning money right away. We emphasize that this is only possible if all the recommendations below are strictly followed.

Experts advise considering questions such as:

• choosing a broker;
• studying educational materials and selecting a trading strategy;
• money management, selection optimal size deposit;
• working with bonuses, trading signals, robots;
• Let's also touch on the psychological component.

Taken together, this will answer the question of how to learn to trade binary options.

We will sequentially analyze the main stages on the path to success, starting with choosing a broker and ending with psychology. also very important.

1. Choosing a broker.

• period of work on the market - the longer the better;
• reputation and reviews, scandals should not be associated with his name;
• the presence of regulators, preferably several of them;
• the amount of payout for options “in the money”, it’s not bad if there is a partial return on options that closed “out of the money”;
• minimum deposit and bet size. The less, the better; for a beginner, a broker with a deposit of 5-10 $ and cost of options from 1 $ is suitable. Reliable binary options brokers with a minimum deposit will allow you not to risk a large amount;
• It is desirable that a demo account be provided without additional requirements;
• bonuses are also important, but do not forget to take into account the working conditions.

2. Training.

If you have zero experience in trading, then it is advisable to structure your training as follows:

• studying the theory - what binary options are, how they work, how they differ from transactions on the Forex market, etc.;
• determine the appropriate trading style;
• Practice on a demo account and then on a real account.

It is undesirable to delve into theory and not consolidate it with practice. In trading, bare theory is worth almost nothing.

As for the training materials on broker websites, they are useful, but don’t expect that after reading a couple of articles you will become a pro. These materials are only suitable for getting a general idea of ​​how the market works, the nuances of working with different types of binary options, etc.

In principle, this is fair, it depends largely on the trader. And the broker simply creates conditions for work and does not put a spoke in the wheels.

3. Choice of strategy.

There is no point in concluding deals at random; through luck you can make a profit several times, but we are aimed at a stable result, which means we need clear rules for working in the market.

When choosing a strategy, consider the following:

• Forex strategy may not be suitable for binary options. It's all about the expiration date; this parameter is simply missing;
• indicator strategies work well with BO, but over time you will have to start optimizing. The market is changeable, so sooner or later it will be necessary to select new parameters and test the strategy on history. So constantly monitor the percentage of successful transactions;
• the strategy under BO should give a high percentage of profitable trades, preferably from 60-65%. With a payout of around 80-90%, you need at least 60% of profitable trades to at least not lose money;
• exclude strategies that use martingale.

As for what time is best to trade binary options, the opening hours of Europe and the USA are suitable - volatility is maximum during this period of time. So we immediately exclude strategies that work in a “quiet” market.

4. Work on a demo account.

A demo account is used to practice the rules of working with a trading strategy and get acquainted with the terminal.

When working on a demo account, keep in mind:

• applications to purchase options are executed almost instantly. In reality, it can be executed with a delay of several seconds (this point is specified in the user agreement);
• Profitable trading of binary options with virtual money does not mean that the same will happen on a real account. This is where psychology comes into play, let’s look at this issue a little lower;
• It is not advisable to dwell on a practice account for a long time. You will not experience the same emotions as when dealing with real money;
• When working with virtual money, try to stick to the same bet sizes that you plan to trade on a real account.

Demo account– the last step before starting to work with real money. Although there is no risk of losing your savings, take this step seriously.

5. Deposit amount.

The minimum deposit amount should be calculated based on the minimum rate. It is advisable that in one transaction the risk does not exceed 2-3% of your capital; in exceptional cases, you can increase the risk to 5-7%, but no more.

Based on this, we calculate the amount of starting capital:

• Let’s assume that the minimum cost of an option is $1, and you can open an account from $10, in which case the risk in one trade will be 10%, this is unacceptable;
• To maintain a risk within 2-3% of the deposit, the starting capital should be $50 and $33.3, respectively.

Among the reliable BO brokers there are companies with a minimum deposit of around $200-250 and a bet starting from $10. For them, the minimum deposit in compliance with the MM rules starts from $300, so at the start it is better to choose the option with a smaller deposit.

And most importantly, only the amount that is safe to lose is allocated for trading. Do not under any circumstances try to trade with borrowed funds.

6. How to use bonuses correctly.

Regardless of where to trade binary options (meaning which broker) you will be offered bonus program. Typically, a bonus is awarded on the first deposit; some also offer a welcome bonus for registration; it is awarded only to new clients.

What all types of bonuses have in common is that they have a working requirement. It lies in the fact that you need to achieve a certain trading turnover on the account in order to be able to withdraw the bonus body and the money earned with it.

Example. Let's say you were awarded a bonus of $150, and the leverage to work it off is 30. This means that you need to buy options in the amount of $150 x 30 = $4,500. In this case, both profitable and unprofitable transactions are taken into account.

Read the terms and conditions carefully. Some brokers block withdrawals until the bonus funds are fully used up. Remember - you can refuse the bonus upon replenishment if the working conditions are not satisfactory.

7. How to use signals and robots correctly.

Signal services for binary options can make life easier, but they can also lead to loss of deposit. It all depends on the signal provider. We do not recommend initial stage If you get carried away with this, you don’t yet have enough experience to distinguish a quality offer from a fraudulent one.

The same can be said about a trading robot for binary options. This is an algorithm that connects to your broker account and trades automatically. This saves time and generally eliminates the emotional factor. On the other hand, you don’t know what strategy the robot is using and drainage is possible.

Classic Forex advisors are not suitable for BOs for the reason that they need to be installed in a trading terminal, and work with options is most often carried out only through the broker’s website.

Among robot sellers, most are scammers - their main goal is to convince the client to fund an account with a certain broker and earn money as part of the affiliate program.

8. About the behavior of the trader.

The ability to control yourself is one of the most important conditions for profitable work with binary options. None trading strategy will not provide a stable profit if you violate its rules over and over again.

It is advisable to start honing your self-control skills while working on a demo account.

The main problem for beginners is that they cannot be calm about losses and profits. It's really difficult, but that's how you should approach trading. If the statistics on the strategy are positive, then there is no need to worry about a losing trade. Resist the urge to recoup or retaliate against the market.

This is the most difficult thing in trading and successful binary options trading largely depends on this. You can look for a strategy on specialized forums, save money for a deposit, but the most difficult thing is to control yourself. No one can handle this except you.

9. About the risks and prospects of trading BO.

It’s not for nothing that binary options trading is called the riskiest type of trading. There is a real chance to lose all your money in just a couple of minutes, in a couple of mouse clicks. The recommendations listed above can reduce the risk of this, but the danger still remains.

Most newcomers come to the market with one goal - to earn a lot in a short time, this is not entirely the right attitude towards trading. Focusing on profit is, of course, good, but this path is unlikely to be short and easy.

At the initial stage, it is advisable not to treat the deposit as your own money. Don't make plans for it, try to imagine that it's not your money and just manage it. This will prevent you from being disappointed in trading if you fail.

To successfully trade binary options, you need to have a perfect understanding of basic information about them.

Check if there are any gaps in your knowledge by watching the video:

Conclusion

To summarize all that has been said, successful binary options trading is possible, but this will require:

• choose a reliable broker;
• take time to study;
• select a vehicle and carefully check it on a demo account;
• open a real account and work exactly following the rules of the strategy. This is the most difficult thing in trading; most often the reason for failure is the trader himself.

Almost all newbies come to the same thoughts after the drain. We share our experience with you and invite you to learn from the mistakes of others. Just follow our recommendations, take your time, be careful, and binary options trading will become profitable.

Useful article? Don't miss new ones!
Enter your email and receive new articles by email

The article is intended to orient novice futures traders in the complex options market, in the abundance of different contracts, in the variety of trading strategies.

So you've just entered the derivatives market. For what? Most people answer this in order to make money on any trend, in order to enrich their trading arsenal, which previously included only stocks, with new tools. Many are captivated by the truly limitless possibilities of options: sky-high returns under a successful set of circumstances, a variety of strategies, earnings in a falling market, the possibility of shorts, and the provision of free leverage. Yes, that's all true, options have certain advantages for making money in the market valuable papers and it would be foolish not to try to use them. But do not forget that with the help of the same options, if used incorrectly and carelessly, you can quite quickly squander all your initial capital.

Well, your choice is clear - you decided to build your trading not without the help of options. Let's say you have already studied certain reference materials on derivatives, selected trading platform, decided on a broker and a trading program, opened an account with the broker and credited a certain amount to it Money for trading. You monitor the market for the underlying asset, monitor the news background, etc. You think you already know how to predict price movements and you can't wait to get started. But where exactly to start and how to build your trading philosophy? However, there is no need to rush so much. Let's first deal with options trading participants.

To better understand the processes taking place on the options exchange, you first need to understand with whom you will actually be trading, who is present on this market. It would be nice to know who benefits from certain transactions, who is usually the seller and who is the buyer, at what moments certain players enter the market, and much more. Knowing this will help you look at some market trends differently and allow you to predict changes in option premiums and volatilities.

In general, there are three classes of trading participants in the options section. These are hedgers, directional position traders and, in fact, volatility traders. Let's first look at each category in a little more detail.

Hedgers. These may be investors who own a portfolio of shares, or individuals who hedge their production or currency risks. Why do they come to the options contracts market? Portfolio managers have an interest in protecting their portfolio from falling in order to have insurance in case of a collapse in quotes. Persons who have foreign exchange positions in their business or production process come to the market in order to protect themselves from foreign exchange risks. We will talk below about portfolio investors. These are smart investors who understand that you can’t go anywhere without insurance. How else? We all know what happened to the shareholders of the people's IPO - VTB or Rosneft. Quotes have fallen significantly below placement levels and it will take a long time to wait for their recovery, and you may not even wait at all. However, if investors in public companies had purchased put options on their shares, such disastrous losses could have been avoided.

So, hedgers are knocking on option desks to buy put options on the stock. This is the rule. They can also write call options on their portfolio. Finally, they can buy a put and sell a call at the same time, forming nothing more than a "fence" as discussed in one of my previous articles. Hedgers are willing to pay for puts and are willing to sell calls. From here it immediately becomes clear that the volatility on puts on stocks and stock indices is, as a rule, higher than the volatility on calls. The additional demand for puts and the additional supply of call options creates an asymmetrical volatility profile, in other words, volatility at high strikes is usually lower than volatility at low strikes.

Hedgers are always present on the market, even in the sunniest periods, times of bullish rallies, when it seems obvious to everyone that the market is set for long and powerful growth. However, insurance against unforeseen situations is always needed and the market can begin a correction at any time.

The second class of options trading participants includes traders of directional positions. These are traders who use options to play on the rise or fall of the underlying asset, whether the market is flat, whether the market reaches or fails to reach certain levels, and so on. Such traders can both sell and buy options. More precisely, they can carry out four main operations: buying a call (expecting growth), selling a call (forecasting overbought), buying a put (expecting a fall), selling a put (expecting growth or stabilization of the market). As a rule, these individuals are well versed and predict the dynamics of the underlying asset. They started out trading stocks and came to the options market to gain additional features on trading directed strategies. After all, if a long and protracted flat market is predicted, then it is quite difficult to make money on stocks alone. They know that options allow you to construct different stock strategies and obtain a variety of risk and return profiles. At the same time, it is not at all necessary to even know about such a concept as volatility. Indeed, volatility is just a matter of strategy price. The higher it is, the higher the option premium. Directional traders tend to price an option from a low-cost perspective. What kind of transactions do such traders make and in what cases? Well, for example, if a trader has concluded that a certain stock is overbought, then a call option on this stock is sold, and it is not at all necessary that they have this stock in their portfolio. How is the strike chosen? Depending on the breakeven level and profitability of the strategy. Usually, a small analysis of possible levels is carried out, the break-even point is calculated for each strike, the profitability of all possible options is ultimately compared, and then a choice is made in favor of a specific strike. The same can be said about the analysis of expiration dates of selected options. Positions are typically held until expiration.

Another example of transactions for this category of participants is the purchase of puts or calls if the market is predicted to fall or rise. In this case, volatility is also practically not analyzed, because with a strong fall, puts become more expensive, just as with a strong increase, calls become more expensive, these players argue. Positions may not be brought to expiration, because you can fix the profit by selling a previously purchased option.

Finally, the third group of players are professionals, volatility traders. They typically do not take directional risks on stock movements and use delta-neutral trading strategies. What does this mean? The choice to buy or sell an option is made based on volatility analysis and forecast. If its growth is predicted, then options are bought; if volatility is expected to decline, options are sold. Immediately after an option transaction, the trader brings the portfolio to delta-neutral. This can be done either through another option or through the underlying asset. Moreover, traders adhere to delta neutrality almost constantly in order to eliminate even the slightest risk of directional movement. Delta neutrality is maintained by daily portfolio rebalancing using the underlying asset or other options.

For volatility traders, it often makes no difference which option (put or call) to buy/sell; the main emphasis is on the implied volatility of this option. When do such players make a profit? Of course, when their volatility forecast comes true, the direction of movement of the underlying asset is not at all important, the main thing is the intensity of such movement.

Most frequently asked question, which I wonder - if volatility traders suddenly realize at one moment that this or that stock is about to shoot up, can they then take naked calls, because they will certainly bring profit. They can, of course, no one can stop them from doing so. However, they perform such operations very rarely, because a 100% guarantee of growth (fall) simply does not exist. Therefore, these traders create delta-neutral positions and do not depend on the direction of movement of the underlying asset quotes. Their profit depends only on changes in volatility.

So, once you understand who is present in the options market, it is easier to move on. If you have opened a combat account and have not yet classified yourself into any of the three categories above, then below I will outline a couple of thoughts on this matter.

Any trader, in order to make money, tries to predict some movement. This could be a change in the underlying asset and/or a change in volatility. If you have a forecast for the price of a stock in the future, you will try to make money on the movement of the stock. If you have a forecast for the behavior of volatility in the future, you will make money on volatility. And if you have a forecast on both points, then you will strive to make money on both movements. That's what philosophy is all about. Let me explain in more detail.

Let there be a certain stock and options on it, trading with some market volatility. Based on the stock price, you can predict growth, fall, or no change in quotes. For volatility, you can similarly predict growth, fall or unchanged. This results in nine different cases for one single stock and its options.

Let's consider the first possible option. You believe that the volatility of a certain stock will fall, but the stock itself will rise. In other words, you are positioning yourself as a delta bull and a volatility bear at the same time. This forecast makes sense if normalization in the stock market is expected, perhaps a smooth increase in quotations. How can you make money, what strategies should you choose? Very simple. In fact, these are strategies with positive delta and negative vega. The simplest of these is selling a naked put. In fact, if the stock goes up, the put will go down in price. If volatility falls, the put will also become cheaper. And if the forecast comes true both for the stock and for volatility, then the profit will be more significant, the put will fall in price more strongly. There are also more complex strategies that allow you to make money on this movement. This is, for example, a bull vertical spread - simultaneous purchase of an ITM call and sale of an ATM call.

The second likely scenario is a bearish forecast for volatility and a bearish forecast for delta. This strategy is used if a slow and smooth downward slide of the market is expected. Which strategy should you choose? The simplest is selling naked calls, a little more complicated is a bearish vertical spread, which involves simultaneously buying an ITM put and selling an ATM put. We remind you that these designs allow you to make money both on the fall of the stock and on the fall in volatility.

The next possible option is when the trader is neutral in his opinion on the movement of the underlying asset, and, for example, expects volatility to increase. By the way, such a trader is a typical volatility trader, a player from the third category described above. What should he do with such expectations? It is recommended to buy strangles or straddles or simply buy options with a delta hedge as an option. Straddles and strangles allow you to make money on any stock movement, whether it is falling or rising. Even if the market doesn’t go anywhere, but adds to the nervousness, your straddle will rise in price and you can sell it for a profit.

If you do not have a specific forecast for volatility, but do have a forecast for the growth or fall of the underlying asset, then it is recommended that at first you simply buy or sell the underlying asset itself. In fact, history has seen many cases where, for example, a call was bought in anticipation of a stock's growth, but no profit was made due to a decline in volatility. As volatility fell, more was lost than was gained from the stock's rise. This often happens because... volatility tends to fall during smooth growth. This is why it makes more sense to simply purchase the underlying asset.

And finally, the last distinctive case is when the trader agrees with market volatility and does not have a forecast for the stock. Then it is better for him to rest a little aside and not take active actions, wait for the situation to change.

It is clear that any current market situation can be classified according to the appropriate criteria and attributed to one of nine segments, and then an appropriate strategy can be selected; options will only help with this.

Considered groups of participants in the options market and the concept of nine possible situations, I hope, will help beginners navigate the complex options market and help them make their first money on it.

Good luck in trading!

If you want to leave your opinion you need or.