fbpx option education | Option Strategist

option education

Dispersion Strategy (10:23)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 10, No. 23 on December 13, 2001. 

This strategy was mentioned in the “Striking Price” column in Barron’s last Sunday, and we have received several questions from subscribers asking about the strategy. The strategy has been around for a long time – since the inception of index options, actually – but it is something of a professional strategy, so it’s not widely know. However, it is gaining more popularity lately, so it is the subject of this week’s feature article.

The Put-Call Ratio (02:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 2, No. 10 on May 27, 1993. 

We often refer to the put-call ratio in our Sentiment Indicators section. However, judging by questions we have received from subscribers, it might be beneficial to expand on the concept. We will cover the subject both generally and then specifically, in regard to the way we prefer to interpret the ratio. The put-call ratio is simply the number of puts traded, divided by the number of calls traded. It can be computed daily, weekly, or over any other time period. It can be computed for stock options, index options, or futures options.

Protection for Stock Owners (09:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 9, No. 13 on July 13, 2000. 

Most option traders – even fairly novice ones – understand that options can be used to protect a stock holding against loss. However, when one delves into the specifics of establishing such protection, he usually forsakes the protection, often due to apparently high costs. In this article, we’re going to re-visit a subject that we’ve discussed before (protection), but try to bring some facts to light that might not be understood by many stock owners. The reason that we think this might be an apropos topic now is that it’s July, and July has marked a peak for the market in each of the last two years. There is some evidence (page 5) that a similar scenario might be unfolding again this year.

Are Options Better Than Stocks? (05:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 4 on February 22, 1996. 

An understanding of equivalent positions is mandatory knowledge for option traders. Two positions or strategies are equivalent if their profit graphs have the same shape. For example, we have repeatedly stressed that covered call writing and naked put writing are equivalent. This can be quickly verified by looking at the profit graph on the right. Both strategies have limited profit potential, large downside risk, and can make money if the underlying remains relatively unchanged in price until expiration.

Portfolio Margin (16:10)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 10 on June 1, 2007. 

On April 2, 2007, the final phase of the Portfolio Margin requirements for listed stock and index options went into effect. Any account approved for naked option trading is eligible to be granted these reduced margin requirements. Assuming that one’s broker has a real-time margining system, the minimum account size to be eligible for these requirements is $100,000; otherwise, it’s $150,000, with certain exceptions. Your broker can elect not to grant you these requirements (much as the broker doesn’t have to grant one exchange minimum margin requirements). However, for competitive reasons, we suspect most brokers will grant the requirements to eligible accounts.

Time For Collars? (23:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 23, No. 22 on December 1, 2014. 

With the stock market at all-time highs, and many stock holders sitting on large gains, thoughts often turn to options as a hedging technique. For stock owners, there are two ways to provide protection to a portfolio: 1) macro protection, which involves the use of index options to hedge an entire portfolio’s risk, or 2) micro protection, which involves the use of individual options on each stock in the portfolio. In either case, the use of a collar is often attractive to the owner of the portfolio, because it is often established for zero debit.

$VIX Hedging Strategies For Stock Owners (13:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 13, No. 5 on March 11, 2004. 

In the last issue, we spelled out the details of the CBOE’s new volatility contracts, which are due to be listed on March 26, 2004. In this issue, we’ll spell out some strategies that every stock portfolio owner should consider – whether or not you currently trade options and/or futures. These new contracts (futures symbol: VX) are dynamic in that they will provide a hedge for you during a declining market, no matter when that decline occurs, and no matter where the market is when the decline begins. This is a vast improvement over, say, buying puts for insurance purposes. We’ll spell out the mechanics of operating such a hedging strategy, and we’ll look at some of the problems that may occur – at least as we can envision them from this vantage point in light of the fact that actual trading has not yet commenced.

A Simple Stock Protection Strategy (07:02)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 7, No. 2 on January 22, 1998. 

From questions that subscribers have asked, and from conversations with other option professionals, it seems that there is a rather large contingent of stock owners who own stocks that are now at losses, and they want to know if options can help them out at this point. So, this article will discuss a simple strategy that can be used for these purposes – the stock “repair” strategy of placing a call spread on top of a long stock position.

Hedged Option Sales (07:11)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 7, No. 11 on June 11, 1998. 

An option strategist is often faced with a difficult choice when it comes to selling (overpriced) options in a neutral manner -- i.e., “selling volatility”. Many traders don’t like to sell naked options – especially naked equity options – yet many forms of spreads designed to limit risk seem to force the strategist into a directional (bullish or bearish) strategy that he doesn’t really want.

First Day of the Month Trading System (21:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 21, No. 22 on November 30, 2012. 

We often trade the first day of the month, since we have done a considerable amount of research on the subject.

The table below shows the gains from trading $SPX on only the first day of the month. That is, it is theoretically bought at the close on trading on the last trading day of the previous month, and it is sold at the close of the first trading day of the new month.

Pages

Option Strategist
Blog Search

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
Visit the Disclosure & Policies page for full website disclosures.

-->