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Dr.J: Why Volatility Matters

NEW YORK (TheStreet) -- optionMONSTER's Jon Najarian spoke at TheStreetMonster conference on Saturday, touching on volatility and why it matters to the individual investor.

Najarian talked about trading strategies relating to volatility, giving an example of an Apple (AAPL) straddle with different volatility levels. "Volatility is an important indicator in the market, not only for the market itself, but how much that option will move," Najarian said, during the presentation.

Traders need to ride the wave of volatility, Najarian said, not fight against it. Volatility has proven over time that trading options is not a losers' game, averaging an annualized return of 9.8% on buy-write calls over the past 20 years, Najarian said, compared to a return of around 7% on the S&P 500.

Najarian also talked about tradeMONSTER, his brokerage firm, and said there are different types of spreads on the platform, including covered calls, vertical spreads, and several others.

Najarian stressed that traders should not marry a stock, but rather trade the market you have, not the one you want. Covered write calls are one way to increase the size of your account, allowing for additional upside, but not paying additional margin. If a trader owned 1,000 shares of Apple, and owned the June $455 calls against double short June $465 calls, and the stock went to $465 by the end of June expiration, the trader could earn $24,100 on the trade, as opposed to just earning $12,000 from owning the common stock.

--Written by Chris Ciaccia in New York

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