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Stocks & Commodities V. 26:2 (39-45): Buying Puts And Calls With PROVEST by Jay Kappel

Stocks & Commodities V. 26:2 (39-45): Buying Puts And Calls With PROVEST by Jay Kappel

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Buying Puts And Calls With PROVEST by Jay Kappel

The second article in this series discusses the details of the PROVEST strategy and how you can apply it to trade calls and/ or puts.

As discussed in the first part of this series, several key factors should be considered in determining the best option trading strategy to use at any given point in time for any given security. Likewise, these criteria can also be used to zero in on the best option or options to trade in executing a particular strategy. Selecting the proper strategy involves knowing what to look for in terms of the following variables:

Probability

Volatility

Time left until option expiration

The skew of implied volatility across strike prices and/or expiration months

Timing of market price movement.

The PROVEST option trading method criteria were developed to identify specific criteria in each of these key areas. The primary factors and key considerations are summarized in Figure 1. In this installment we will look at a specific trading strategy buying naked calls or puts and how to use the PROVEST criteria to identify trading opportunities.
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