Tutorial

Webinars

Simple Practices for Maximizing Gains in Vertical Spreads - Jan 29, 2020
Leo covers why the Gamma Optimizer service makes extensive use of spreads instead of single options. He shares the most common mistakes that options traders make when trading spreads and how to eliminate them and maximize gains through a set of simple best practices.

Optimizing Your Options Trades - May 10, 2018

Playing Market Volatility With SPX Options - Sep 15, 2020
Leo discusses the best way to use SPX index options to take advantage of the expected seasonal volatility and added dynamic of the presidential election.

Options Courses

Leo has developed an options education video series in his Gamma Optimizer service. The 6-part series, ranging from an introduction to options to advanced options trading strategies, is currently only available to GO members, and archived in the service's video section. The series covers:

1) Introduction to Options: Basic concepts and tips.

2) Options Pricing: Pricing options in a risk-neutral world, plus Binomial model introduction.

3) Talking Greek: Advanced options pricing, Black Scholes Merton Model, volatility and greeks.

4) The Power of Gamma: Time decay, Gamma and Vega in detail.

5) Put-Call Parity and Synthetics: Trading implications and applications related to synthetic positions.

Class 6 to follow.

Leo has also developed a premium set of online courses for all levels of options trading. Whether you're just getting started in the options world or wish to master sophisticated strategies, these courses will make a savvy and skilled options trader. Learn more and get discount code to save more than 50%.

Glossary A-Z

When joining the service new users can feel overwhelmed by the particular lingo that is spoken in all of our posts. Though the terms might sound strange or too advanced, most of the time the concepts are very simple to understand. In order to help everyone new to the service, here is a list of very common terms used in the room and also links to YouTube videos and site posts labeled "Education," to where I explain them at length.

Ambiguity: I post a chart about a statistical quantity called Ambiguity, which is a close cousin of VIX (it was created by one of the co-inventors of VIX). It measures the Knightian uncertainty in the market. The concept is pretty advanced, but the way I use the chart is simple: We look for low ambiguity to start a leg up, and for very high ambiguity when expecting downside action.

Binary Options: In the room I talk frequently about binary options, in particular the 1% upside binary call. A binary option always pays 100 if it finishes in the money, or 0 otherwise. Because of this it is a very simple way to play certain scenarios because it allows to compute in advance both expected profit and losses. For a more detailed discussion please check this video

Complex Trades - Butterflies, Calendars, Risk Reversals, Vertical Spreads: These are a set of trades that can be done with options and are called in general Complex Trades. The reason is that the trade requires the simultaneous execution of multiple “legs” where we are buying and selling options with different strikes and or/expirations at the same time. See video for more information:

Convolutional Nets: These are neural networks trained with SPX historical data that seek to predict moves in a 5-trading session period. One of the networks, called Ultra-4, looks for 1% up-moves in the market. A second, called Zero-I, provides the most basic prediction (market up, or market down). The third, called Neg-I, predicts -0.5% market declines. Unlike Leo's original NDLA algorithm, Convolutional Nets can be used to play both positive and negative signals. See video.

DLA and NDLA: This is a deep learning algorithm trained with SPX historical data that seeks to predict 1% upside moves in SPX within a 5 trading session period. The DLA was the original implementation and in 2018 we replaced it with the “New” DLA or NDLA.

Gamma: This is probably one of the most frequent words you’ll see in the room, it will be accompanied by a qualifier most of the time: long gamma or short gamma. Gamma is a mathematical parameter that describes the amount of non-linearity of an option. For a more in-depth presentation on this please check my YouTube video

The Gamma Central tool provides a nice snapshot of the current realized and implied volatility status for any underlying. The tool provides functionality through tabs, and what follows is a brief description of what each tab does. For more in-depth information about the tool, please check the following YouTube video

Gamma Optimizer or GO: This is a reference to our Long Gamma Optimizer tool, which is a tool we use to compute the best options to play a particular thesis. For a tutorial of the tool please check this video.

GT / Gamma Threshold Level: The level at which most options dealers are neutral in the aggregate (i.e., they don't need to hedge). Above that level, dealers are long gamma, with their hedging activity tending to slow down big market moves, producing lower volatility. Conversely, when below the GT level dealers are short gamma and their hedging activity amplifies or accelerates moves, creating more market volatility.

Kurtosis: In the momentum chart we have the control chart that displays a value called Kurtosis. This is a basic statistical number that tells us a lot about the nature of the distribution of intraday log returns. When kurtosis is 3.0 the distribution is normal (also called Gaussian) and means that most of the action is perfectly random fluctuations of price.

Log Returns: In finance returns are usually measured as log returns. This is a simple concept and it is defined as: Log Return = log (close/ prev close) where log() is the natural logarithm function.

SPX Term Structure: This is a chart that I publish frequently in the room and represents the Implied Volatility of options across different expiration dates. It gives you an idea of how expensive options are based on how close to expire they are. The X axis of the chart is time in days, and the Y axis is implied volatility in percentage. For a more detailed explanation of this concept please check the Gamma Central tutorial.

Standard Deviation: This is a statistical term that is very important to options. It is defined as the square root of the variance (so if you know variance you know standard deviation). This is explained in more detail in the volatility videos (see "Volatility").

Variance: This is another statistical term, and it it corresponds to the classic variance of population distributions. It is a very important concept for options and it is explained in more detail in the Volatility videos (see Volatility).

VIX: Another term that you will see a lot in the room is VIX. This is an index created by the CBOE that measures the 30-day implied variance in the market using only SPX option prices. It is a very useful measure, and although it can be traded directly there are lots of products connected to it, like VIX futures, or volatility ETP’s like VXX and SVWY. For more information about VIX check the CBOE website and also this video.

Volatility: This is a very frequent word in the GO room and it is a key concept for option trading, in finance volatility is basically the standard deviation of log returns, scaled to an annual value and also printed as a percentage (10%, 20% etc). It comes in several flavors most notably Realized Volatility and Implied Volatility. See video here.

Volatility or Momentum Center: This is a helper application with multiple charts updating real time, most of them designed to track momentum in any underlying. See video.

VRP: Another term that appears very frequently is VRP or Variance Risk Premium. In its most basic form the VRP is an added premium between "implied volatility" and realized volatility. In general, implied volatility trades above realized volatility (it trades at a premium called the VRP). For more information please see video.