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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.


Educational Videos Wed Apr 26th 2017

For those of you new to room please make sure you visit my youtube channel to watch some educational videos that explain some of the lingo I use here. In particular watch the VRP video here: If you click on my name you can see all the other videos I have posted.

An Educational Stat Arb trade Wed Apr 26th 2017

Here is the full GDX/GLD trade even though I don’t find it attractive anymore. We had bad luck with the 5% move in GDX that happened before we could start this trade (it would have been wonderful if we were on it before that). The idea behind the trade is the strong correlation between GLD and GDX which is around 93% long term. However the correlation has been very inconsistent of lately, around 30% in the last 90 days then going up to 87% for the last 60% days and it is now at 70% for the past month.

SPXPM options Thu Apr 20th 2017

One more about SPX (sorry for the spam). Because tomorrow is a third Friday of the month SPX options cease trading today and then they expire just at the open. For those of you that like to play lottos you can use the SPXPM options. The symbol is just the normal SPX options but with PM expiration, so that means that they will trade fine until 4:00PM tomorrow.

Option Pricing lesson Sun Apr 16th 2017

Here is finally the third lesson on the options and volatility series: It covers the concepts of pricing uncertain outcomes, and how to price options using risk neutral portfolios. If you are new to this series here are the previous two lessons. Volatility lesson 1: and lesson 2:

Volatility Lesson 2 Sun Apr 9th 2017

Here is the second video on this Volatility series course: It shows how to compute and analyze volatility values. It introduces the concepts of realized volatility, future volatility and implied volatility as well as the correct way to interpret current VIX readings. This lesson went a bit longer than planned at about 41 minutes long so please be patient with :) As usual any feedback is greatly appreciated.

Volatility Lesson 1 Thu Apr 6th 2017

And here is the promised first lesson for the my new Volatility Class: This class is suitable for all audiences, beginners and experts alike. The idea is that we all can have a good understanding about what volatility is and how is connected to option prices. I hope you enjoy.

Tutorial for Complex trades Thu Apr 6th 2017

Hello folks, this is a short tutorial for those of you that are not familiar with the complex option trades that I post here all the time. This tutorial will be useful for those of you that want to know more about what a complex option trade is and how to place it. It also covers some basic concepts like mid price, legs and some general advice for managing these kind of trades. If you are new to the room and/or to trading options please check this video first: https://youtu.

Volatility lessons Thu Apr 6th 2017

I know that some of you (most?) are new to the world of options and I imagine that you find my posts a little cryptic, also my trade setups can look incredible complex to you (they are simple in fact). So to close this theoretical gap I have prepared a series of lessons around the concept of volatility which is central to options trading and hopefully after going over them you will get an easier time understanding my lingo and the trade setups.

Mini-apps Thu Apr 6th 2017

Just a periodic reminder of the links for the mini-apps that you can use here in this room: Slow trend tool: Fast trend tool: Kurtosis app for 4 indexes: And the M5 momentum too:

Variance Risk Premium Video Sun Apr 2nd 2017

Hello folks, as a way to answer a question that was asked in the room I decided to create a short video explaining the Variance Risk Premium concept and how to use the VRP tables. I hope you enjoy the video: