Recently I have been reeducating myself with option strategies.
It has been over 15 years since I executed an option order at the CBOT. After joining the MTM team, I viewed many of the teaching videos and listened to Dan and John K. talk option strategy with students. Thus, I am eager to use options in my trading and teaching again. It has come to me that some of the strategies I use to trade futures would be better suited for trading options. Learning options is not like riding a bike for me. It will take some time and work to get reacquainted with all the tactics, but I look forward to the rewards.
When publishing daily futures updates, I use a unique charting method for pinpointing support and resistance or buy and sell levels. I’ve found that when a market returns to an old high-volume price, a reversal frequently occurs. And when a market is between two high-volume prices, it often oscillates within those levels as premium deteriorates. If you like to short premium, seek patterns that typically lead to consolidation phases where premium decays.
When a market moves too far, too fast, it is thought to be overbought or oversold. Consolidation patterns and time decay are common after above-average moves. During a trend, low-volume pockets are often left behind. When returning to such areas while between two high-volume prices, options premium tends to decrease.
In the example below, note during the week of 10/14 that Nasdaq(NYSEARCA:QQQ) spent an entire week filling in a low-volume pocket between two high-volume prices. Old high-volume prices can be used as strikes in a containment-type trade. This phenomenon also occurred on the week of 10/28 through 11/6.
If a market enters a low-volume pocket between two high-volume nodes and the recent speed of the move is too fast (overbought/oversold), this is an opportunity to sell options and collect premium while the pace problem dissipates.