How to make Profit in a Volatile Market at low cost - Long Strangle Option Strategy
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What is Volatility? And Strategies to Trade It
For a more complete disclosure please visit www. Volatility Trading Strategies. Recent Posts See All. Sign up. Options Explained 2 pp Cite as. In this chapter, I will discuss what may be the most creative of the options strategies, volatility trades. As previously explained, volatility is essentially the risk aspect of the market. As I mentioned in Chapter 4, there are three ways to measure volatility.
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One method is the historical basis which measures what has happened in the past and is expressed as the annualised standard deviation of percentage changes in the underlying asset. Finally, there is the method of volatility estimation which forecasts future volatility by using econometric techniques which incorporate both the historical and implied techniques.
Trading news announcements can be risky due to the large moves that can follow a news release.
Therefore, you should be prepared well ahead of time. First of all, making sure you place your trade BEFORE the news event hits is one of the vital keys in doing this successfully. You can make an educated guess as to what the market will tell you before the event is released as well as make a logical guess as to which way the market will move based on your educated assumption.
As an example, consider the event that typically creates the most movement during any given month: the U. Analysts will also publish expectations for news releases like NFP. These are important because the market has likely priced in the expectations. If the expectations are met then traders should not expect too large of a move.
Alternatively , if the announcement is way outside of expectations, then there could be a large move. You can find expectations and upcoming news announcements on our economic calendar. Before NFP is officially released, there are a variety of economic indicators that also measure employment and can be used as guides to making an educated guess.
Market volatility and trading strategy | Smith & Williamson
Of course, it is vital to use stops and targets as managing a wrong guess is paramount to saving the balance of your account. As you can see from the chart below, predicting a bad result would have been a pretty good guess. The possibilities are endless. Every Friday afternoon at 5pm Eastern Time, the forex market closes for the weekend.