Monday, June 1st, 2020

Options Trading Volume


Options trading volume varies with the belief that prices of underlying equities will fluctuate. For example, institutions that are writing puts in options trading may not believe that a stock or commodity price will fall but those buying puts do. It is not the change in price of the underlying that drives interest and increases options trading volume but the expectation of continuations or reversals of an equity trend. High volume tends to improve liquidity and allow buying and selling puts or calls at smaller increments. High volume can be coupled with market volatility which will lead to profits for the half of traders who read their technical indicators correctly.

There are kinds of options trading for every trader and every view of the options markets. Uncovered options trading selling puts and calls is often more profitable than buying puts and calls. The problem with making a living trading options when what you do is sell uncovered puts and calls is that you need a lot of money. This is why much of that sort of options trading is done by large institutions with the reserves to cover the occasional large loss. Traders engaging in occasional options trading will often buy puts or calls in the hope and expectation of a single large profit during periods of high options trading volume.

High options trading volume begets increased liquidity with, typically, a narrowing of the distance between bid and ask prices. High volume comes from increased interest from lots of traders. With many of traders come many of opinions. A trader with a long options strategy and well as one with a short options trading strategy may be attracted to trading options on the same stock. High options trading volume will continue so long as opinions differ as to the expected value of options on their respective options expiration dates. It is during this high volume and its attendant volatility that profits are to be made by the prepared and attentive trader.

It is expectation that drives options trading and increases volume at moments of high interest. When market fundamentals drive a stock price up or drag it down. Expectation is what attracts interest in options trading but it is preparation and practice that bring profits. Whether you are interested in options trading CBOE after the IPO or like interest rate options trading you need to know the history and nature of trading in that set of options. A long straddle or a short straddle will both work fine so long as you know the mechanics of how they work and trade with risk management in option trading in mind. Who wins when trading during high trading volume is he or she who has done their homework, practiced scenarios on simulation trading, and has the time, patience, and devotion to no only make trades but be ready to get out of them if the unexpected happens. Lists are available from options exchanges of options trading at high volume as well as those with high open interest. As always, learn, practice and then do.

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