This article was originally published in The Option Strategist Newsletter Volume 16, No. 11 on June 15, 2007.
At the end of most of my seminars, I give a few general tips or principles that one should use. One of those is, “Only trade in accordance with your personal philosophy.” By that, I mean that you shouldn’t indulge in styles of trading that cause you to worry, gnash your teeth, or lose sleep.
This article was originally published in The Option Strategist NewsletterVolume 4, No. 1 on January 12, 1995.
Buying options is often regarded as one of the most speculative activities. However, as we have shown time and time again, there are often differing ways in which one can establish a strategy. These different ways may change the speculative to the conservative, or at least moderate things somewhat. Buying options is no exception.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 13 on July 8, 1993.
Two strategies are equivalent when they have the same profit potential. That is, their profit graphs have the same shape. More experienced option traders know that an understanding of equivalent strategies or positions is vital. It can help in many ways. For example, one may be able to more effectively use his capital by establishing the more favorable equivalent strategy. Or, when trading, he may be able to get a better execution. Finally, he may be able to make better adjustments to his positions by using equivalent strategies. The concept is not new, but even a veteran trader may have to sort through some equivalences in order to choose the best position.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 6 on March 29, 2002.
As this stock market continues to trade in a wide range, it is becoming more and more frustrating to all manner of participants – whether they be traders, investors, or option speculators. While I don’t claim to have done a thorough survey of a broad array of traders, I can tell you that the frustration is evident among those that I have spoken with. They include day traders, short-term traders, mutual fund managers, and investment advisors (newsletter writers). About the only ones who seem to be happy (but they are nervous) are naked option writers. They have been making money – as long as the striking prices of the written options are outside of the trading range – but they recognize (at least the smart ones do) that with volatility this low, a price explosion is possible at any time (hence, their nervousness).
This article was originally published in The Option Strategist Newsletter Volume 1, No. 30 on June 25, 1992.
Futures option margin requirements for customers are generally more logical than equity or index option requirements. For example, if one has a conversion or reversal arbitrage in place, his requirement would be nearly zero for futures options, while it could be quite large for equity options. Moreover, futures exchanges have recently introduced a better way of margining futures and futures option portfolios -- the SPAN system (Standard Portfolio ANalysis of Risk). SPAN is designed to determine the entire risk of a portfolio, including all futures and options. It is a unique system in that it bases the option requirements on projected movements in the futures contracts as well as potential changes in implied volatility of the options in one's portfolio. This creates a more realistic measure of the risk than the somewhat arbitrary requirements that were previously used (called the "customer margin" system) or than those used for stock and index options.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 1 on January 7, 1993.
The real value in being able to use the options when a future is locked limit up or limit down, of course, is to be able to hedge one's position. Simplistically, if a trader came in long the August soybean futures and they were locked limit down as in the above example, he could use the puts and calls to effectively close out his position.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 7 on April 13, 1995.
Credit spreads using options are a popular strategy. In this article, we'll define them, see how they work, and attempt to assess their true profitability. They have been growing in popularity recently, partially for the wrong reasons, as we will see later in the article.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 9 on May 10, 2001.
Most option traders understand that it is advantageous to buy “cheap” options. Unfortunately, most don’t cite any specific reasons why, other than the general “retail” concept that it’s better to buy something cheap than something expensive. Ironically, in the option markets, that’s not always true. There are times when buying expensive options is actually a “good” thing to do. But one must recognize that those occurrences are infrequent, and he must have a specific knowledge of what he can expect to happen to his position if he has stumbled into one of those more frequent times that expensive options are harmful to his profits.
This article was originally published in The Option Strategist Newsletter Volume 21, No. 15 on August 10, 2012.
In a continuation of the irregular series, explaining our analytical techniques, we are going to discuss how we interpret put-call ratio charts. This series began two issues ago with an article on naked put selling. Future articles in this series will encompass other aspects of position selection: calendar spreads, volatility skew-based trades, ratio spreads, and so forth.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 22 on November 21, 2001.
This is not really a year-end tax strategy, but it is something that covered writers who are writing calls against low-cost-basis stock should consider.
