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Petrohawk Energy (HK, news, chart) is seeing double its normal trading volume, as players take positions in anticipation of volatility in the share price. The stock is trading up 80 cents to $41.85 and 15,000 puts along with 18,000 calls have traded on the day.

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Reader S. V. raises an interesting question:

I am working on scenarios to trade the contra-ultra indexes like SDS to take advantage of either a combo spread (selling puts and buying call) or another method to take advantage of price movements while reducing risk. Any thoughts?

Shorting the stock doesn’t seem all that attractive an option here. If Lehman proves that their assurances actually have some merit, the stock could snap right back to the 40-45 level. Instead, we want to take advantage of the monstrous volatility that has been priced into the near-dated options...

A downside risk reduction strategy involving the simultaneous purchase of a put option with the sale of a covered call option. This is known as the Equity Collar.

What should you do when the underlying moves against an iron condor position you have open?

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Yes, yes it is.

Should you place these trades? No. Should you even think about it? No. If you’re in the New York metro area, should you spend today outside instead, enjoying the not unpleasant 55 degree weather? Most definitely.

Does this describe you?

* You’d like to participate in any nice rally that comes our way over the next month;
* You’d like to avoid any and all downside risk in case the rally never comes and indexes stay flat or plunge;
* You’d like to get paid just for hanging around and waiting to see what happens.

Here’s a funky little way to do exactly those things.

Assuming we’re long anything at this point, what puts would we use as a hedge, and how many do we need? First, we have to figure out how our portfolio moves in relation to the market. We know that four out of five stocks move in the same direction as the market trend, but by how much? Two numbers can give us a pretty good idea: beta and R-squared...

There’s no magic price that the market owes you. We’ve talked about getting your orders filled before, but here are some more general rules of thumb that can help you get in and out of positions in a timely manner...

Some volatility-related items of note, ranging from the obvious to the esoteric, in that order.

Since we opened our first trade for March expiration, the S&P 500 index is down almost 100 points - that’s a loss of over 6.6% in a little over one month, and the index is now off 12% from it’s January open. Happily enough, our March trades averaged 8% return on capital risked...