Nick Katiforis

Directional vs Non-Directional Trading

Have you ever found yourself in a situation where you have picked the right direction of a market? Have you ever said “this stock is going up” and then seen it go up? It can be a great feeling to see that something happens as you anticipated, and also great for the ego.

But how many times have you thought something was going to happen and it didn’t? Probably more times than you can remember, or would want to remember. This is the nature of picking market direction. Some hits and many misses. The idea is to make the hits count much more than the misses.

Options are unique in that trades can be structured that are not solely reliant on you being right on picking market direction. Other factors such as time decay, and implied volatility can also be brought into play.

Trades can be structured that are neutral in their market outlook. This means that they start out not having any particular bias in terms of market direction.

Adjustments are then made to keep the trade neutral should a large market move cause the trade to become unbalanced. A written strangle is an example of such a non directional options strategy.

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