Chapter 3: Understanding the Profit/Loss Patterns over Time. This chapter evaluates the profit and loss in terms of Time Units (typically day and week) feeding into Time Spans, Average Profit versus Average Loss, Standard Deviation, Sharpe Ratio, Median P/L, Percentage of Winning Days versus Losing Days, Drawdown and Correlation Analysis. This section focuses on the core metrics of trade performance, for a given period:

In calculating the metrics, it becomes clear if your strengths are in trading long debit spreads, short credit spreads, directional trades (be it up/down) or non-directional trades. Trade in line with what you are intuitively profitable at, be that debit/credit spreads or directional/non-directional trades. The metrics help you guard against trading counter-intuitively in opposition to your strengths. Chapter 4: The Risk Components of an Individual Portfolio. The emphasis of this chapter is on Historical Volatility, Correlation and Implied Volatility and Value at Risk (VaR). While it is educational to understand how these various risks can be aggregated up into a single, portfolio measure of exposure, it is not useful for option traders trading retail portfolios from home.  Why?  To re-simulate the test scenarios on the portfolio cited in the text, requires specific types of data. The Account Statement of most retail option trading platforms only record each trade’s profit, loss and date. The additional data of each day’s Historical Volatility, Implied Volatility, Correlation coefficient values and Standard Deviation/Variance values will need to be sourced from outside the trading platform.  Unless you are trading multiple portfolios on behalf of other individuals, VaR simulations make sense. If you are trading just your own portfolio, it more useful to get an Implied Volatility tool that forecasts IV rising or falling by X% over 30-60-90-120 days.  This is a much more affordable way to assess the total impact of IV and Correlation in IV on your portfolio.Chapter 7: The Risk Components of an Individual Trade. The section to focus on here is the Core Transaction-Level Statistics. This includes the Trade Level P/L, Holding Period, Average P/L, Weighted Average P/L, Average Holding Period, P/L by Security or Asset Class and Long Side P/L versus Short Side P/L.  The main point here is to monetize the Average Holding Period of a long or short position. For example, as a guideline:

In conclusion, the critical points to focus on are the 3 types of targets at the portfolio level, the core metrics of trade performance, identifying your intuitive trading orientation and monetizing the average holding period of long and short trades for efficient trade turnover.  Translating these specific elements of trading risk into methods you can rely on every day, builds the required consistency in the profit and loss of your trading account.

… if you can afford to diversify …

Where can I learn how to trade options profitably using Intermarket analysis with retail asset allocation methods? Follow the link below, entitled “Consistent Results” to see a profitable retail option trader’s portfolio that is set up to cycle in and cycle out of Intermarket relationships, between asset classes.Why is it possible? I’m using optionable ETFs (Commodity, Currency, Emerging Market and REIT), as well as optionable broad based/sector Equity Indexes, to trade the volatilities of each respective asset class. I do not need to trade Commodities and Currencies directly.  Remember, volatility can be added to/reduced from the portfolio, as not all Asset Classes or Sectors or Individual Companies or Countries move up/down in value ALL at the same time; and/or, ALL at the same rate.

Binary options trading is an exciting emerging field in the world of investing. As the name implies, there are only two potential outcomes in a binary options trading contract – win or lose. The way most contracts are structured there is a fixed payout for win (typically 75% profit plus return of initial investment), while the lose payout is typically around a 15% return of capital. Maybe a few numbers would help.

A successful $200 trade in a binary options trading contract would pay $350 ($200 initial investment plus 75% profit), while an unsuccessful trade might pay $30 (15% of the original $200 investment). It does seem strange to receive a return of some capital on an incorrect action, but that helps make the market work – and really creates some interesting hedging opportunities. It’s almost like getting a ‘parting gift’ on a game show, no?

There are some limitations on the available opportunities to participate in this market, as there presently aren’t a wide variety of securities traded on it. On the other hand, those few securities which are traded on the binary options trading markets are extremely well known, highly liquid securities such as the US Dollar/Yen fx rate, Google, Nasdaq Index, and Microsoft.

One great aspect of this type of investment is the quick turnover rate of investments. Options expire hourly, meaning your investment payoff occurs within the same day – rather than the weeks, months, and years it may take to see a return in other forms of investments.

Another really great aspect of this emerging market is the low barriers to entry. It only takes $100 to open account – a stark comparison to the ten thousand dollars needed to open a traditional options account with your regular brokerage.