econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 26 November 2016

Tips For Trading Options With Elliott Waves

from Elliott Wave International

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

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.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Destruction of the Existing Workforce
Minsky’s Theory of Asset Prices: Why Minsky Was NOT a Neo-Monetarist
News Blog
Most Flags Combine Red, White And Blue
Electroconvulsive Therapy: A History Of Controversy, But Also Of Help
Super Bowl Ad Prices Doubled In A Decade
What We Read Today 21 January 2017
People Who Laughed At TRUMP...and Said He Would Never Be President
Disentangling Cyclical From Structural
Rent Growth For Lower-Priced Rental Homes Stayed Strong, But Higher-Priced Rental Homes Slowed In 2016
How Do Imports Affect Manufacturing Jobs?
Active Vs Passive Investing: And The Winner Is ...
Infographic Of The Day: The Incredible Pigeon
Early Headlines: Global Unaffordable Housing, Trump Signs ACA Exec Order, Trump Orders Halt To Regs, HealthCare.gov Enrollments Increase, Greek Tragedy, China Household Debt Surges And More
The Rise Of The Gluten-Free Diet
Who's Smoking In The U.S.
Investing Blog
Technical Thoughts: Three From The Trading Room
Why Are Investors Moving To ETFs?
Opinion Blog
Economics, Society, And The Environment: What's Wrong With This Picture?
How To Read Theresa May's Brexit Speech
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved