Options trading has two big benefits over other forms of trading. One of them includes the ability to make profits when you predict a financial instrument will be relatively consistent in terms of price. The second includes the ability to make money when you believe that the same instrument is volatile.
When a stock or another security is volatile it means that a large price swing is likely, but it’s difficult to predict in which direction. By using volatile options trading strategies, it’s possible to make trades where you will profit providing an underlying security moves significantly in price, regardless of which direction it moves in.
The Different Types of Volatility Trading Strategies are:
The options that one has in terms of volatility trading strategies are quite a few. Depending upon the time of business and service one wishes to offer they can select the suitable type:
This is one of the simplest volatile strategies and is suitable for beginners. In it, two transactions are involved which makes a debit spread.
This is a very similar strategy to the long straddle but has a lower upfront cost. It’s also suitable for beginners.
This is best used when your outlook is volatile but you think a fall in price is the most likely. It’s simple, involves two transactions to create a debit spread, and is suitable for beginners.
This is basically a cheaper alternative to the strip straddle. It also involves two transactions and is well suited for beginners.
You would use this when your outlook is volatile but you believe that a rise in price is the most likely. It is another simple strategy that is suitable for beginners.
The strap strangle is essentially a lower-cost alternative to the strap saddle. This simple strategy involves two transactions and is suitable for beginners.
This is a simple, but a somewhat expensive strategy that is suitable for beginners. Two transactions are involved to create a debit spread.
Call Ratio Backspread
This more complicated strategy and is recommended if one’s outlook is volatile but they think a price rise is more likely than a price fall. Two transactions are used to create a credit spread and it is not recommended for beginners.
Put Ratio Backspread
This is a slightly complex strategy that one would avail if their outlook is volatile but they favor a price fall over a price rise. A credit spread is created using two transactions and it is not suitable for beginners.
Short Calendar Call Spread
This is an advanced strategy that involves two transactions. It creates a credit spread and is not recommended for beginners.
Short Calendar Put Spread
This is an advanced strategy involves two transactions and creates a credit spread. Beginners should not avail of this volatile strategy.
Short Butterfly Spread
This complex strategy involves three transactions and creates a credit spread. It isn’t suitable for beginners.
Short Condor Spread
This is an advanced level strategy that involves four transactions. A credit spread is created and it isn’t suitable for beginners.
Short Albatross Spread
This is also a complex trading strategy that involves four transactions to create a credit spread. It isn’t recommended for beginners.
Reverse Iron Butterfly Spread
Four transactions create a debit spread in this method. It’s complex and not recommended for beginners.
Reverse Iron Condor Spread
This is an advanced strategy that includes a debit spread and involves almost four transactions. Beginners are advised not to use this.
Reverse Iron Albatross Spread
This is a complex trading strategy and is not advised to beginners. It creates a debit spread that involves making four transactions.
10+ Volatility Trading Strategies Templates in PDF | DOC
1. Volatility Trading Strategies
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3. Stock Market Volatility and Trading Strategy
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4. Trading Strategies of Volatility Derivatives
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5. Volatility Forecasting and Trading
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6. Volatility Trading and Volatility Derivatives
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7. Strategies for High Volatility Markets
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8. Sample Volatility Trading Strategies
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10. Printable Volatility Trading Strategies
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11. Volatility Strategies in Currency Trading
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