Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Tips for Trading Options with Elliott Waves

InvestorEducation / Elliott Wave Theory Nov 26, 2016 - 04:55 PM GMT

By: EWI

InvestorEducation

EWI Senior Tutorial Instructor talks about the benefits of applying Elliott waves to options trading

In this new interview, Wayne Gorman, the head of our Educational Resources Department, offers tips and strategies for options traders.

[Editor's note: The text version of this interview is below.]


Alexandra Lienhard: Welcome to ElliottWaveTV. I'm Alexandra Lienhard, and today I'm joined by Senior Tutorial Instructor, Wayne Gorman, who is also the head of Elliott Wave International's Educational Resources Department. Wayne, thanks for being here today

Wayne Gorman: Thank you, Alex. It's great to be here.

Alexandra: Now, you have more than 30 years of experience as a Wall Street risk manager. You've also taught hundreds of people all over the world how to use the Wave Principle, both in online courses and in live events. And one of the areas that you have expertise in is using options in conjunction with Elliott wave analysis. I wanted to ask you about some specific market situations where you find it more beneficial to use options, as opposed to, say, futures contracts?

Wayne: Well, there's a couple different types of situations. The first, certainly, is in corrections, where you have a lot of up and down movement and it's not very directional. Sometimes it's beneficial to use options because of the volatility. You can take advantage of that.

Futures, outright long and short, is best in third waves and fifth waves, where the direction is clear. It would almost be a waste of money to use options when the direction is more certain and clear. There are times where you're using Elliott wave where you know the trend, but in the very short term, the market could go either way, and sometimes having options gives you that flexibility to be positioned for that.

A classic case was recently with the election, we were in a situation where we were in a second wave down in the stock market, and it could've gone a little further down -- or it could've stopped and rallied. That's a good situation for options. One of my favorite strategies is called the "short iron butterfly." You buy a put and a call, so you're ready to go up or down, and then you hedge that by selling a put and a call out of the money. After the election, that strategy -- which normally only makes money on one side -- would've made money on both sides, because the market went down and then it came right back up. There are other strategies like that where you're just not sure, or you're at a critical juncture. So it just depends on the situation.

Alexandra: What markets work best for these options strategies?

Wayne: Many markets work well. Option strategies aren't restricted to any particular market, as long as there's a lot of liquidity in the market, good volume; volume is important. So, I wouldn't say any one in particular, but certainly highly volatile markets are good if you're long volatility with options. I wouldn't restrict it; as long as you have a deep market it's fine.

Alexandra: Now, on the flip side, are there options strategies that you recommend people stay away from?

Wayne: Yes, I'm glad you asked that. In my courses, I stress that I do not like to take certain option positions where you're net short options -- because if you're just short a call or short a put, then your return, what you can make, is limited. You can only earn the premium that you're received for selling the call or the put; your risk is unlimited. I always recommend that if people are going to short options that they have something else on the other side. For example, let's say, you're long a stock. You think the stock may go sideways and you want to earn some money. You could sell a call against that. And you don't have unlimited risk because you're covered, you own the stock. If the market goes way up, what you lose on your call you'll make back on your stock; it's called a covered call. Those strategies are fine. But what we call a naked short is, I think, too risky. Most people lose a lot of money on that.

Alexandra: Last question for you, if you could sum it all up, what is the one greatest benefit you find using options in conjunction with your Elliott wave analysis?

Wayne: I would say at certain junctures where the market, accordingly to your Elliott wave analysis, presents two valid wave counts. In the long-term, both counts point in the same direction, but in the very short term, they point in opposite directions. So it's very hard to position in futures; you can't be long and short at the same time. It's those kinds of situations when I recommend using options. Especially also if you've missed a lot of the move, maybe you're well into a third wave or a fifth wave, and your stop would be so far away, but you still want to participate -- that's sometimes a good moment to use options, because you can limit your risk and you don't have to have a big stop-loss facing that type of risk.

Alexandra: Great, thanks Wayne for taking a couple of minutes to talk today. I appreciate it.


How to Use the Elliott Wave Principle to Improve Your Options Trading Strategies
-- Range Bound Strategies -- the Covered Call and Covered Put

If you're an options trader, this free 12-page eBook by Wayne Gorman will help you use Elliott wave analysis to improve your options trading success. You will learn how the Covered Call and Covered Put can be incorporated with Elliott wave analysis to enhance your success in sideways markets.

Download your free eBook now

This article was syndicated by Elliott Wave International and was originally published under the headline Tips for Trading Options with Elliott Waves. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife