Technical Analysis

Tastylive: When Stock Prices Swing, Option Buyers Are Losing THIS Opportunity

While investors may prefer steady markets, volatile markets are great for traders. That’s because big daily swings can create many profitable trading opportunities, whether stocks move up or down.

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  • But not all market swings are created equal. Some markets are volatile with high trading volume. At other times, the market may be swinging with very little volume. During the summer months, for instance, markets tend to have lower volume. It then picks up later in the year.

    Typically, market volume reflects market sentiment and potential shifts. When there’s low volume but a fair amount of volatility, investors likely aren’t looking at any fundamental changes. Rather, it’s a sign that the status quo is likely to continue.

    Higher volume reflects changing views on the market. And those views tend to play out with higher or lower trends over a period of days or weeks.

    For options sellers, market volume can play a big role. Sellers of call options looking to cover a stock position may not get as high returns when stock volume is low.

    Sellers of put options during periods of low volume may get stuck being assigned stocks when volatility and volume pick up.

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  • Both investors and traders have the opportunity to buy during calm or volatile markets. For shorter-term trades, knowing how volume impacts markets can play a big role in total returns.

     

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