Dan Passarelli

Dan Passarelli

Dan Passarelli is an author, trader and former member of the Chicago Board Options Exchange (CBOE) and CME Group. Dan has written two books on options trading — "Trading Option Greeks" and "The Market Taker's Edge." He is also the founder and CEO of Market Taker Mentoring, Inc., a leading options education firm that provides online options education, options newsletters and personalized, one-on-one coaching for option traders.

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Is Volatility Over Priced?

We’ve seen this movie before. Different actors. Different setting. But it’s the same old formulaic screen play. … And we know how it ends. Every so often, a controlled problem arises that leads to opportunities in the market. Like, remember the Y2K bug panic in December of 1999?  Panicked investors where buying up options to […]

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Fed’s New Song

After months and months of the Fed propping up the U.S. stock market, the Fed has changed its tune. And, as we can see, the market doesn’t particularly like this song. One of the big lessons for traders from recent market action resulting from Fed news that I want to examine in today’s post is […]

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How the VIX Telegraphed the Market’s Top

It’s been a good run this year for the U.S. stock market. Now we’re seeing somewhat of a pullback. No surprise, really. Stocks can’t just keep going up forever. And, it’s really no surprise when one considers what’s been going on with the VIX lately. The CBOE Volatility Index, or VIX, measures buying and selling […]

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Sell (Options) in May and Go Away

Many investors have heard the phrase “Sell in May and go away”. But the question is: Sell what?  Often, traders consider this trading idiom only from an equities standpoint. That is, sell stocks in May and get back in the game after the summer. The rationale for this logic is that the summer months typically […]

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Trading With Discipline: The Battle of the Brains

It doesn’t matter how long you’ve been trading, you can slip into bad habits. One of the worst habits for any trader, experienced or not, is to trade without discipline. There are lots of various option trading strategies, philosophies and methodologies. All traders need to trade with a plan. More importantly, traders need to follow […]

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Making the Most Out of Option Theta

**Editors Note: Dan will be speaking at Traders Expo Las Vegas today thru Saturday. He is a good friend of the CBOE, track him down and introduce yourself to him.   There are two things in life of which a trader can be certain: Death and theta. Option theta can be used to the advantage […]

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Exit Strategies

We, as traders, spend a lot of time thinking about trade set-ups, and trade entry levels. But, to be sure, it’s the trade exits that matter the most. The price at which one exits a trade ultimately determines whether the trade is a winner or a loser. In fact, two traders can both put on […]

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A Problems with Many Traders: Lack of Diversification

One of the problems with many of the traders that come to me seeking coaching is lack of diversification. I’m not talking large caps vs. small caps or techs vs. emerging markets. That sort of diversification is more in the context of investing—not trading. As option traders, we must diversify our option-centric risk. We must […]

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Legging Into Iron Condors

One of my favorite strategies is a two-parter: Legging into Iron Condors. I was talking with one of my mentoring students late last year about this strategy. The student was fairly neutral on a particular stock, but felt it might have a little more room to the upside in the short term. The stock was […]

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Trading With Discipline: The Battle of the Brains

It doesn’t matter how long you’ve been trading, you can slip into bad habits. One of the worst habits for any trader, experienced or not, is to trade without discipline.   There are lots of various option trading strategies, philosophies and methodologies. All traders need to trade with a plan. More importantly, traders need to […]

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Reverse Lottery Tickets

It’s OK to admit it. Lottery tickets are tempting. Sure, your chances of winning aren’t that good; but the pay-off! A lot of us are willing to risk just a little bit for the (remote) chance of hitting it big. But when traders first learn to trade options, many option traders find themselves on the […]

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Building a Watch List

New traders and sometimes not so new traders often wonder how more experienced traders have developed a stable of stocks that they constantly monitor looking for trade opportunities. The answer can be a very simple explanation to a lengthy conversation on how it was amassed. A watch list can help a trader track stocks and […]

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Covered Strangles

At some point, all routs fizzle out. But calling a market bottom is tough. Nonetheless, if traders aren’t positioned for the upswing when the market hits its low, they might miss a precious opportunity. The covered strangle is an option strategy involving both a call option and a put option that can be used to […]

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Apple (AAPL) Directional Butterfly

Butterfly spreads are generally thought of as being a neutral strategy. The long butterfly involves selling two options at one strike and the purchasing options above and below equidistant from the sold strike. What some traders don’t realize is that butterfly spreads can be used directionally by moving the body of the butterfly out-of-the-money and […]

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Call Calendar Spreads In This Uncertain Market

Deciding whether or not to open a covered call position in this type of market condition can be a challenge for some traders and investors because the current market has been extremely choppy over the last two weeks. In this uncertain market, buying stock can be a much riskier investment because of these huge price […]

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Horizontal (or Do You Say Calendar or Time) Spreads

A horizontal spread, or what it is sometimes referred to as a calendar spread or time spread, is a pretty simple strategy. The spread is designed to work somewhat like a covered call but without the initial outlay of cash that can accompany buying shares of stock. The spread profits from option time decay and […]

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Bearish Outlook Over Earnings – a Possible Strategy

Option traders are generally told to stay away from earnings announcements. Why? -Because they can be very unpredictable and cause a winning trade to become a loser with either a good or bad report. Also, implied volatility is usually inflated for the expiration month that is closest to the announcement, especially on volatile stocks. Option […]

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Bull Call Spreads

Here’s a simple strategy that all traders should know how to use: The bull call spread. A bull call spread is buying a call option and selling a higher strike call option against it. This creates a spread between the two strike prices with the ultimate goal of the trade to have the stock price […]

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Directional Butterfly Spreads,

The only disadvantage of a directional butterfly spread is that its maximum profit potential is reached close to expiration. A trader will have to be patient which is usually a good quality for a trader to have. Butterfly spreads are generally thought of as being a neutral strategy. The long butterfly spread involves selling two […]

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Mastering Theta

There are two things in life of which a trader can be certain: Death and theta. Option theta can be used to the advantage of a clever trader. But to be successful, there are a few things all traders must know about theta. Time Decay As the amount of time until expiration decreases, so does […]

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Reverse Lottery Tickets

Lottery tickets are tempting. Sure, your chances of winning aren’t that good (let’s face it, they are horrible!); but the pay-off! A lot of us are willing to risk just a little bit for the (remote) chance of hitting it big. But when it comes to option trading, many traders find themselves on the other […]

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Expiration Facts

With May expiration imminent, I figured it’s a good time to review some important expiration nuances. 1) Theta is highest during expiration week – When the bell rings Friday at the close of trading, there will be no option premium left in May options. This means long options are punished more this week and short […]

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Sell in May and Go Away? Sell what?!

Many investors have heard the phrase “Sell in May and go away”. But this is an often-misconstrued trading idiom. Specifically, traders need to understand what to sell. If this long-standing trading wisdom is misunderstood (and implemented the wrong way), it can be detrimental and make for lousy trading results this summer. Overly-simplistic traders (who are […]

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Citigroup Liquidity: On It’s Way or Here to Stay?

I’ve got some great questions since my last blog post on the Citigroup, Inc. ( C ) 1-for-10 reverse stock split. One recurring question is about C’s option liquidity. Citigroup options are among the most actively traded, high volume and consequently most liquid options on the exchange. Post-reverse split, will they still remain liquid? At the […]

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The Citi Reverse-Stock Split: How it Works With Options

Citigroup Inc. ( C ) has announced a 1-for-10 reverse stock split. For shareholders, this is a straightforward, easy-to-understand transition. On the X-date of the reverse split, stockholders will get one share for every ten they own and the value of the shares will be ten times greater. Before and after the split, the trader […]

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The Volatility Advantage

One of my favorite words in the English language is volatility. Volatility, volatility, VOLATILITY! Love it! Why? Because that is where option traders get their edge. But, wait a minute! Why is it that the taking heads on the news talk about volatility like it’s a bad word? Two reasons: 1) They are generally speaking […]

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The Little Quirk of Vol and Weekend Decay

In trading, the thing that separates the men from the boys (or women from girls, if you will) are the details. The little quirks in pricing models and other analyses and calculations that not everyone knows about. These subtle nuances can cause the naïve to take it on the chin every now and then, while […]

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The VIX, Volatility Spikes and Panic in the Streets

The CBOE Volatility Index, or VIX, measures the implied volatility of the SPX options. Let’s rephrase that: The VIX measures how cheap or expensive options that can be used to hedge broad-based portfolios are. Let’s rephrase that once again: The VIX measures how scared investors are. There is a normal ebb and flow for the […]

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Looking for the Exit

What’s the most important part of any trade? The exit, of course. The exit price of a trade ultimately determines whether the trade is a winner or a loser, after all. But where do traders tend to focus most of their efforts? On trade entry! So for this blog post, let’s focus on this ever-so […]