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Options Myth #3

Options Traders are Volatility Traders

MYTH #3

Options Traders are Volatility Traders

This statement is at the core of the confusion facing anyone trying to learn options. And believe it or not, it's the exact opposite of what everyone thinks. Once you understand who is a Volatility Trader, you can accept a different approach to learning options.

TRANSCRIPT BELOW

TRANSCRIPT

Options Traders are Volatility Traders

This statement starts the confusion in the options world.

Let me ask you to think about this question.

What percentage of options traders are volatility Traders?

A. 100%
B. 75%
C. 50%
D. 25%
E. Less than 5%

Take 5 seconds.

My answer is E. More specifically, I’d say it’s closer to 0.1%. If I am wrong it’s 1%, but I don’t think I'm wrong.

The average answer by investors is between B and C.

So, where exactly is the confusion? 

What Type of Trader are You?

Volatility Trading is a very specific way of trading options reserved for options traders at the top investment banks, a few hedge funds, and market makers.

This is a very small universe of traders. 

Volatility Traders don’t necessarily care where the stock goes. They care about how it gets there and make a profit by using the Greeks to capture the movement in the stock. It's important to realize that a Volatility Trader maintains a directionally-neutral portfolio.

Simply trading the VXXBs or the VIX to catch the next directional move in volatility, up or down, is not “Trading Volatility.” This is trading the direction of the Volatility. 

There’s a huge difference.

Most options traders are what I call Directional Leverage Traders.  
They profit primarily from where the stock goes (or doesn’t go).

Remember that.

BACK TO MAIN MENU

Options Myth #3

Options Traders are Volatility Traders

MYTH #3

Options Traders are Volatility Traders

This statement is at the core of the confusion facing anyone trying to learn options. And believe it or not, it's the exact opposite of what everyone thinks. Once you understand who is a Volatility Trader, you can accept a different approach to learning options.

TRANSCRIPT BELOW

TRANSCRIPT

Options Traders are Volatility Traders

This statement starts the confusion in the options world.

Let me ask you to think about this question.

What percentage of options traders are volatility Traders?

A. 100% 
B. 75%
C. 50% 
D. 25%
E. Less than 5%

Take 5 seconds.

My answer is E. More specifically, I’d say it’s closer to 0.1%. If I am wrong it’s 1%. But I don’t think I'm wrong.

The average answer is between B and C.

So, where exactly is the confusion? 

What Type of Trader are You?

Volatility Trading is a very specific way of trading options reserved for options traders at the top investment banks, a few hedge funds, and market makers. This is a very small universe of traders. 

They don’t necessarily care where the stock goes. They care about how it gets there. The volatility trader makes a profit by using the Greeks to capture the movement, while maintaining a directionally-neutral portfolio. 

Simply trading the VXXBs or the VIX to catch the next directional move in volatility, up or down, is not “Trading Volatility”… it’s trading the Direction of Volatility. 

There’s a huge difference.

Most options traders are what I call Directional Leverage Traders. They profit primarily from where the stock goes (or doesn’t go).

Remember that.

BACK TO MAIN MENU

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