Options and Volatility, step 5 of 5
OPT3 Trading Volatility
Session timeline
Briefing
Trading30 min
Debrief
The case
A share and options at three strikes trade together. Volatility is traded through the options.
Objective
Trade volatility itself: take a view on how far the share will move. Assessed on profit and loss.
What it shows
- Volatility as a price: the options imply how far the share moves.
- Wings: outer strikes that are cheap and pay only for a large move.
- A position that is long or short volatility, not long or short the share.
Watch out for
- A volatility view that carries an unwanted direction.
- Outer options that look cheap and expire worthless.
- Holding the position while time takes the premium.
Who takes part
- Trader — every student. Trades SHARE, C50 and P50 at the middle strike, and C60 and P40 at the outer ones.
Class size
Ten to forty students in one role. The last case of the options track.
Concepts
- Volatility trading
- Option strategies
Roles
Trader
You trade a share, SHARE, and options at 40, 50 and 60.
- Assessed on profit and loss.
Instruments
| Ticker | Name | Market | Students can |
|---|---|---|---|
| SHARE | Underlying share | Continuous trading | Trade it |
| C50 | Call at 50 | Continuous trading | Trade it |
| P50 | Put at 50 | Continuous trading | Trade it |
| C60 | Call at 60 | Continuous trading | Trade it |
| P40 | Put at 40 | Continuous trading | Trade it |
In the tracks
- Step 5 of 5 in Options and VolatilityCalls and puts at three strikes on one share.