3 Tips to Trade a Volatile Market
With the recent market events, and continuing market uncertainty how can traders have exposure to the market to capitalize on big moves, while managing their risk? Here are 3 easy ways that an options traders can increase their chances for successful trades in a volatile market:
1. Reduce the time you are in a trade
While there are times that you want to give trades the time needed to make the most profit possible, when a market has large swings, holding trades for longer time periods can mean that a trader’s profits can easily be wiped away. Volatile markets, especially when news is moving the market in different directions is a perfect situation to trade weekly options. Weekly options are well suited to times of market volatility because a trader can still have the same assumption about the underlying but trade options that expire within a week or a couple of weeks rather than months out.
2. Trade options in other markets, like options on futures
Options on futures are another great way for traders to limit risk in a volatile market. Commodity markets in may be trending in one direction when equity markets are whipping back and forth. Trading an uncorrelated market can give you access to trades using strategies you already know. There are many options strategies that limit risk just like a stop in a futures contract, yet keep the trader in a trade through the volatility.
3. Trade Different expirations, including Wednesdays
Options on futures and many of the cash settled equity indexes now have Wednesday expirations. This is great for traders allowing them an even shorter time to be in a trade and avoid large market moves. Now a trader can get in and out every week and make the volatility an advantage.
Return to Blog