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The I-Ching Of Options Trading

By: Jason Ng

If you are reading this article, chances are that you might have come across or have some kind of knowledge in the term i-Ching. You must be wondering, how in the world is a five thousand years old classic related to modern options trading? Well, the truth is, everything about options trading, from basic strategies to advanced strategies to unheard of strategies have been explained and defined in the i-Ching!


I have been reading a lot of philosophical books lately, perhaps due to the fact that I am getting older by the years. One of those books that really caught my attention is the Chinese classic i-Ching. The i-Ching defines how everything in the world stems from two polarities; Ying and Yang, the positive and the negative (in fact, I believe it explains Standard Model Physics!). In fact, western science ended the search for a base code for computers which can be used to generate endless possibilities and calculations when they chanced across the i-Ching. The theory of Ying and Yang polarities gave birth to the binary coding that is used in modern computers. The wide and almost infinite possibilities that can be computed also proved the i-Chings claims that the Ying and Yang is capable of producing endless possibilities and matters.


One paragraph in the i-Ching sums up its entire philosophy, Infinity (or infinite intelligence) gives birth to the Two Polarities (Ying & Yang), the Two Polarities give birth to the Four Manifestations (Ying positive, Ying negative, Yang positive, Yang negative), the Four Manifestations give birth to the Eight Pentagram and the Eight Pentagram gives birth to all things.


So, how are all these to do with Options Trading?

Amazingly, I see the exact same pattern in options trading and it explains why there is literally endless number of possible options strategies!


Options Trading relies on two basic building blocks; Call Options and Put Options. One for going up and the other for going down (the Ying and the Yang). Buying call or put options is the simplest of all options strategies. Call and put options can either be bought or written, giving rise to four possible basic strategies (the Four Manifestations), Long Call, Long Put, Short Call and Short Put. The four basic options strategies, when combined, leads to eight advanced options strategies (the Eight Pentagram), Long Call + Short Call (Bull call spread), Short Call + Long Call (Bear Call Spread), Long Put + Short Put (Bear Put Spread), Short Put + Long Put (Bull Put Spread), Long Call + Short Put ( Call Risk Reversal), Long Put + Short Call (Put Risk Reversal), Long Call + Long Put (Long Straddle), Short Call + Short Put (Short Straddle).



Wow, thats amazing isnt it?



Well, it gets better! Remember it is said that the eight pentagram gives rise to all things? This means that from these building blocks, an INFINITE number of options strategies are possible! Thats right! Every single complex multi-leg options strategies such as the Butterfly Spread and the Iron Condor Spread, are made up of these basic building blocks!



Thats right, what the i-Ching is teaching us about modern options trading is that an infinite number of options strategies can be created from call and put options and is also why options trading is the most versatile trading method in the world. This is also why nobody can ever completely Master options trading. The possibilities of options trading are literally endless and are also why I have been trading, teaching and writing about options for more than a decade and never get bored.

About the Author

Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management ( MastersoEquity.com ) and author of an Options Trading education site, Optiontradingpedia.com. He is a fund manager specializing in options trading and his revolutionary Star Trading System has helped thousands.

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