Option Trading Riddle of the Day

Option trading fun: Courtesy of member John Gadd,

Q:  Which has the greatest chance of occurring?
1.  The sun rising tomorrow morning
2.  Hotter in Summer, Colder in Winter
3.  RUT hitting 1000 by noon tomorrow

A:  Is a trick question — because all have the same odds…..

It’s funny because John, along with so many other traders is frustrated by the never ending upmove of the RUT. If you haven’t been trading the RUT the last couple months, you won’t understand.

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2 Comments

  1. Jeff on April 27, 2010 at 3:29 pm

    I totally agree!! The RUT is WAY too volatile, which is why I don’t trade it! There’s no reason to invest in something with such a high risk/low reward ratio. We already get into the SPX every month, so how about something not so related.. i.e. GLD. OIH, etc?

    Just my 2 cents…

    • Genius on April 27, 2010 at 3:46 pm

      I would have to say that OIH and GLD are much more volatile than the RUT. But you are right, lately the RUT has been acting out of character. Remember though, that the more volatile it is, the more premium you get.

      In regards to its correlation with SPX, you can give yourself some diversification by entering your trades on different days to expiration. You will note that many times, a big move in the markets will impact one of the trades, but not the other.

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