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Trading options on the S&P 500 is a popular way to make money on the index. There are several ways traders use this index, but two of the most popular are to trade options on SPX or SPY. One key difference between the two is that SPX options are based on the index, while SPY options are based on an exchange-traded fund (ETF) that tracks the index.

You’ll often read that a given option trade is either vega positive (meaning that IV rising will help it and IV falling will hurt it) or vega negative (meaning IV falling will help and IV rising will hurt).   However, in fact many popular options spreads can be either vega positive or vega negative depending where where the stock price is relative to the spread strikes.  

The greatest joy in investing in options is when you are right on direction. It’s really hard to beat any return that is based on a correct options bet on the direction of a stock, which is why we spend much of our time poring over charts, historical analysis, Elliot waves, RSI and what not.

A 1x2 ratio spread with call options is created by selling one lower-strike call and buying two higher-strike calls. This strategy can be established for either a net credit or for a net debit, depending on the time to expiration, the percentage distance between the strike prices and the level of volatility.

A backspread is very bullish or very bearish strategy used to trade direction; ie a trader is betting that a stock will move quickly in one direction. Call Backspreads are used for trading up moves; put backspreads for down moves.

A long put option strategy is the purchase of a put option in the expectation of the underlying stock falling. It is Delta negative, Vega positive and Theta negative strategy. A long put is a single-leg, risk-defined, bearish options strategy. Buying a put option is a levered alternative to selling shares of stock short.

A long call option strategy is the purchase of a call option in the expectation of the underlying stock rising. It is Delta positive, Vega positive and Theta negative strategy. A long call is a single-leg, risk-defined, bullish options strategy. Buying a call option is a levered alternative to buying shares of stock.

Everyone knows the statistic - 95% of traders fail. Whether or not that's an accurate statistic, it's certainly true that few that attempt trading ever make life-changing money. Part of that is because most don't take it seriously. But what about those that do and fail?

A seagull option spread involves adding an additional short option to a vertical debit spread to reduce the net debit paid, often enabling you to enter a trade for zero cost. The name is derived from the fact that the payoff diagram has a body and two wings, imitating a seagull.

Covered calls have always been a popular options strategy. Indeed for many traders, their introduction to options trading is a covered call used to augment income on an existing stock portfolio. But this strategy is more complicated, and riskier, than it looks.

Learning how options work is a key skill for any trader or investor wanting to add this to their arsenal of trading weapons. It’s really not possible to trade options well without having a thorough grounding of the mechanics of what these derivatives are and how they work.

The protective put (sometimes called a married put) strategy is one of the simplest, but most, popular, ways options are used in the market. Here we look at this defensive strategy and when and how to put it in place. Options provide investors and traders with an extremely versatile tool that can be used under many different scenarios.