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Educational Articles

Leonardo Valencia

This page features periodic articles by Leonardo Valencia on better understanding options trading and the methodology and lexicon underlying his Gamma Optimizer.


Advanced Topics in Options Thu Oct 5th 2017

I finally got around preparing an advanced lesson for options. This one in particular centers around the put-call parity concept on how out of it you can develop even more advanced concepts like Synthetics, Conversions, Reversals and Boxes. The lesson is about 1 hour long split in two videos: Advanced Topics Part I: Advanced Topics Part II:

Gamma and Convexity Wed Oct 4th 2017

For those of you that attended the webinar, you can get a video for it with slides with correct spacing here :

Free apps. Mon Sep 25th 2017

For all of the new people this is a recurrent post for all the apps we use here: Position Watcher: You can see what we have opened plus some tracking trades I do for members. Momentum Center: here we track momentum at every scale. The infamous red dots are on the control chart here.

Trading Directional Views Sun Sep 24th 2017

In light of the removed thread, I wanted to summarize the information that was lost inside which I think it was very valuable and applicable to any system that can pick direction with a success rate > 50%. For that I have created a short tutorial in YouTube: I hope you enjoy and as usual please let me know any questions that you have. BTW I made a small mistake (numerical) in the video we'll see of how many of you catch it (very small).

Expected ATM level from Option Prices Fri Sep 22nd 2017

Option prices provide many clues about future expectations of volatility but what about future expectation of prices ? Can option prices give us hints of the expected terminal distribution for each expiration date ? In principle they can, however remember that options are priced based on a risk neutral world.

VIX Options and their weird prices Wed Sep 20th 2017

I got a great question about why not using VIX November options for the End of the World trade, so instead of writing a long explanation I decided to create a YouTube video tutorial for it. You can find it here: Have fun watching it and as usual please let me know any questions that you have.

Market orders Thu Sep 14th 2017

Just because I'm seeing this on the EWT website with certain frequency. As the most interesting man on the world would say about using market orders with options: Don't.

Dividend Arbitrage Thu Sep 14th 2017

SPY goes ex-div tomorrow and this is a good moment to talk about the effects of dividends on options and the games that very big players play on ex-div days to make a quick buck almost risk free. Option prices are heavily dependent on several parameters including interest rates and dividends. Those factors are usually very small and change very slowly to have a noticeable effect on prices for many options.

Complex Book Wed Sep 13th 2017

All of the positions that we trade here in the G.O room are complex option trades. They use several legs that need to be executed simultaneously, so in order for those orders to be processed correctly the exchanges run an additional complex order book for options. This order book is completely separated from the single options one, so liquidity and bid/ask spreads of individual options are irrelevant here (at a higher level of abstraction of course).

Market Makers and Faeries Fri Sep 8th 2017

We have some fellow option market makers in the room so I want to use this time to dispel one particular notion about Option markets that captures the popular imagination. There is an extended belief that on expiration day option market makers manipulate the price of an underlying to make sure that a vast number of options by open interest (puts and calls) end out of the money so they don't have to pay out. This notion is completely false, that is not how the options market works.