Few that follow global markets on a regular basis would need specific data to tell them that volatility in the financial markets has picked up in recent weeks.
But in the event you've been out of the loop, simply pull up a price chart of the VIX, the S&P 500, crude oil, or natural gas and you'll be immediately updated on just how much asset prices fluctuated in October/November.
While trading environments characterized by heightened volatility can be stressful, they also usually offer additional opportunities to deploy attractive exposure.
For example, if you are a dedicated bull in Apple (AAPL) and are planning on holding that position for years to come, then you can currently buy additional stock at a discounted price (compared to a couple months ago) - depending on your outlook and risk profile.
Another dimension of trading that typically picks up during periods of heightened volatility is scalping. In the trading industry, the term "scalping" can be used to describe a couple different approaches.
For volatility traders, scalping usually refers to a stock hedging strategy that is layered over a delta-neutral options portfolio.
In this context, scalping refers to delta adjustments (i.e. stock adjustments) that are made at regular intervals to help reduce directional exposure. By reducing directional exposure, a delta-neutral options portfolio is theoretically more anchored to mean reversion, as opposed to direction.
Alternatively, scalping may also refer to a stand-alone approach utilized by traders that go long or short positions in assets they believe have moved too far in one direction on a given day. This strategy is usually intended to take advantage of short-term mispricings in the market.
If you do routinely deploy scalps, a new episode of Market Measures should be of interest.
On the show, the hosts walk viewers through market data that clearly illustrates how up-and-down movement in equity markets has expanded in the final third of calendar year 2018, as shown in the chart below:
If you’re intrigued by the concept of scalping and want to learn more, you can also review a tastytrade series that was dedicated to the subject. Additionally, there have been several previous blog posts that featured scalping - both the volatility type and the standalone approach.
Check them out:
If you have any questions about scalping in the current environment, you can also leave a message in the space below, or contact us directly at @tastytrade on Twitter or email@example.com.
Thanks for reading!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.