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During a discussion about my trading system, the question arose regarding the ability to exit positions entirely and mitigate substantial drawdowns during a crash-style event. This particular circumstance has caused concern about the effectiveness of the trading method. The common response to such concerns is often centered around the concept of maintaining a properly diversified portfolio.

Options can be an extremely useful tool for short-term traders as well as long-term investors. Options can provide investors with a vehicle to bet on market direction or volatility, and may also be used to collect premiums. A long options position is simple to use, and has defined risk parameters.

The bull call spread is a simple strategy that can be used by novice options traders to bet on higher prices. Options can be an extremely powerful tool in the trading arsenal of those that know how to use them, and long options positions can be used to bet on a market rise or decline, with limited risk and potentially unlimited profit potential.

The option strike price (also known as the exercise price) is a term used in options trading. Options are derivatives. These financial instruments are ‘derived’ from another underlying security such as a stock, and give the right (but not the obligation) to buy or sell the underlying at some point in the future.

Growing a small trading account with options can be a challenging task, but it is definitely achievable. When I began my journey in trading options, my goal was to double my small account every three months. However, I quickly learned that taking excessive risks without proper risk management would only lead to starting over again and again by adding new funds to my account.

Investors that are looking to make longer-term bets may use LEAP Options. They are functionally identical to most other listed options, except with longer times until expiration. These contracts are ideal for options traders looking to trade a prolonged trend.

Options trading has many advantages over stock investment. They are flexible, can be used to manage risk and are capital efficient. But there are also several key disadvantages. Here's our guide to the pros and cons of options trading.

Options are derivatives that allow investors to exchange the right to buy or sell a specific security at a specific price. We've seen before exactly what options are, how they work and their function. Here we go further and explore the two main flavour of options (at those traded on the open market): puts and calls.

Rho is the sensitivity of an options's price to changes in interest rates. It is usually only worth considering for long dated options such as LEAPS. Rho is the least important of the five major Greek metrics. In fact, it is often overlooked entirely when talking about options.

Options theta measures option price sensitivity to time. All things being equal options lose value over time - so called 'time decay' - and theta measures this decay. In other words, an option premium that is not intrinsic value will decline at an increasing rate as expiration nears. 

Options Delta is the measure of an option’s price sensitivity to the underlying stock or security’s market price. It is the expected change in options price with a 1c change in security price (positive if it rises/falls with a rise/fall in market price; negative otherwise).

Gamma is the options greek measuring the sensitivity of delta to changes in stock price. Option traders tend to find it relatively easy to understand how the first-order Greek metrics work. All of these metrics measure how the value of an option moves according to a change in an underlying parameter.