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How Much Should You Risk? (13:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 13, No. 13 on July 8, 2004. 

This subject of risk is one that we have addressed in the past. In this article, we’ll not only review the basics of risk management, but will also introduce a more advanced technique designed to even better assess your risk and adjust your position size accordingly.

There are two facets to trading: position selection and risk management. Many traders feel that the latter is more important than the former. In fact, some have gone so far as to say that any reasonable method of selection will work as long as one has an excellent method of risk management.

Expected Returns (09:19)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 19 on October 11, 2000. 

Many sophisticated traders use ‘expected returns’ to analyze the profit and loss expectations of their investment strategies. In this article, we’ll define what that entails and then point out some of the benefits and difficulties in using such statistics to predict how a strategy will perform.

Protecting a Portfolio of Stocks (01:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 1, No. 12 on June 11, 1992. 

With myriad investment advisors and the media trumpeting the fact that the market is overvalued, and with scary comparisons to the summer of 1987 abounding, an owner of stocks might justifiably be concerned with how he can safeguard his portfolio. He may not want to sell out his portfolio and go into an all cash position, but he would like to have some "insurance" in case the market takes a nosedive. Most investors in today's markets are familiar with the fact that index futures or index options can be used to protect one's portfolio. However, few know exactly how to adequately and correctly protect their portfolio of stocks. In this week's feature article, we'll describe the way in which one can compute the number of futures or options that would be needed to properly hedge his portfolio.

SELLING OPTIONS: Naked or Hedged? (06:02)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 6, No. 2 on January 22, 1997. 

In this article, we're going to take a look at the strategy of selling options. Just how profitable it is, and some of the considerations for naked selling or for using credit spreads. With option premiums inflated in many markets because of increased volatility, this seems like a timely topic. I'm not specifically including covered writing in this discussion, but since a covered call write is equivalent to selling a naked put, you can apply any of the commentary that pertains to naked put selling.

Handling Uncertainty (19:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 19, No. 12 on June 25, 2010. 

Options have many uses, but a primary one is that they are built to be a hedge for many investors and traders – in order words, to take some uncertainty out of a particular trade or strategy. This is a well-known fact for professional traders, but less so for the novice option trader or – even worse – the investor who doesn’t use options because he considers them to be strictly a speculative vehicle.

The Lessons Of History, Circa 1928 – 1936 (18:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 4-5 on March 5, 2009. 

I’m a numbers guy – degrees in math and all that – so I get a lot out of looking at charts, tables, and so forth that show past market behavior. That also makes me a technician. But it always amazes me how people can look at the same set of data and come away with very different conclusions.

$VIX and $SPX are Both Rising! What’s Going On? (18:15)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 15 on August 7, 2009. 

It is generally accepted that volatility decreases in a bullish market phase and increases during a bearish one. Even on a daily basis, CBOE statistics show that 75% of the time, if $SPX moves one way, $VIX moves the other. When longer periods are considered, the percentage changes (see page two for exact statistics). Yet, recently $VIX has begun to increase even while $SPX is blowing out to the upside. This is unusual action, and we’ll try to examine it in this article.

Learning From The Past (16:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 5 on March 9, 2007. 

One of the things that one hears from “old-timers” when the market declines sharply as it has recently, is that money managers are so young they’ve never seen something like this before. Personally, I don’t buy that. You can’t tell me that the hedge funds and large institutional money managers don’t have someone in a supervisory or risk control role that isn’t at least old enough to have seen the 2000-2002 bear market, the October 1997 and October 1998 mini-bear markets, and probably even the Crash of ‘87. At the very least, they saw the correction in May-June, 2006. I think what prompts “old-timers” to say such things is that each time the market peaks before one of these sharp corrections, it seems that these big money managers are buying with total abandon – as if they don’t remember the lessons of the past. And that may be true. Perhaps these money managers were operating during past corrections, but they think this time “it will be different.”

Another View of the $VIX/SPY Hedged Strategy (18:4&5)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 4&5 on March 5, 2009. 

We have been using the hedged strategy between volatility and the broad market for over a year now, and the results have been good. But there’s more to this strategy than meets the eye. So, perhaps it isn’t useful only when $VIX futures are sporting a big premium or discount. It might make sense in a broader array of situations.

Speculative Strategies: Trailing Stops, Partial Profits, Targets, etc. (18:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 18, No. 13 on July 10, 2009. 

Everyone enjoys a good speculation now and then – even the most confirmed hedged trader. However, there are a lot of ways to handle a speculative position once it’s in place. In this article, the main focus is going to be on when and where to take profits – as opposed to cutting losses. We’re going to look at several partial profit strategies in an attempt to show what one is really doing to his position in the name of taking profits.

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