A New Road Map for Options Trading

Beginners Enabled by Options Market Changes
Most Retail Traders who are considering learning how to trade Options, have not heard about the major changes to the options Market that have occurred over the past few years. These changes have been kept from Retail Traders since the professional side, retail brokers, and retail vendors make enormous profits from their customers who trade options.   

This puts the Retail Options Trader at a huge disadvantage, which can cause lower profits or more losses trading options.

There is a New Road Map for Options Trading due to several factors which include the following:

1. An area that is growing exponentially is the High Frequency Trader presence now in the Options Markets and their use of Maker-Taker roles instead of Market Makers. This alters how options trades perform and creates complexity that is not understood by many Retail Options Traders.

2. Also, the Securities and Exchange Commission SEC continues to monitor several retail brokers for conflict of interest trading, as they perform as the primary Market Maker for their customer base.

3. In addition more and more giant Buy Side Institutions are using Options as a hedging or mitigation style trade, with the sole intent of insurance rather than premium trading.  These are short-term trades that alter the Put to Call Ratio which many retail trading strategies rely upon.  When the Buy Side employs huge option contract buying of Puts to insure a higher risk short-term trade, it can skew the Put/Call ratio giving retail Traders a false signal. 

The Buy Side Institutions simply let the Puts expire worthless as the stock and its option move into profitability.

4. Newer Options Strategies and Options Trading Styles provide a basis for Beginner Options Traders to have better results with their options trading by using the increase in Institutional options trading, the increase in High Frequency Trader trigger activity, and the expanded presence of Professional Floor and Independent Professional Traders in the Options Market.  By understanding these dynamics which are altering how Options Trading is evolving and changing the Beginner Options Trader can learn faster, earn higher profits, and lower overall risk factors.

This enables the new Options Trader to  become proficient faster regardless of the Options Trading Style they choose.
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As an example, the Dow 30 has been moving with extreme speculation.  The Balance of Power Indicator has never been this extreme, indicating NOT Dark Pool activity but Smaller Funds and High Frequency Traders.  Understanding this in relation to the VIX-X Chicago Board Options Exchange Market Volatility Index which is not showing any pattern of volatility or velocity, but is showing instead a lack of volatility enables the Beginning Options Trader to choose the ideal stock and option instead of high risk options. See chart below.



The DJ-30 Dow Jones Industrials chart shows the extreme pattern of Volume and Balance of Power indicative of High Frequency Traders chased by Volume Weighted Average Price VWAP smaller Fund orders. See chart below.



Summary

The VIX-X chart in comparison to the Dow 30 chart shows and entirely different pattern for the majority  of stocks at this time. Contrarian patterns between these two critically important chart is mandatory for Beginner Options Traders to understand IF they wish to  be consistently profitable trading options.

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Trade Wisely,
Martha Stokes CMT

TechniTrader technical analysis using TC2000 charts, courtesy of Worden Bros.

TechniTrader

Chartered Market Technician
Instructor and Developer of TechniTrader® Stock and Option Courses
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