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 12, No. 10 on May 22, 2003.
Most people think of covered call writing as at least partial protection against a downside move by their stocks. Of course, buying a put as protection for a stock position affords a lot more protection – in fact, complete protection below the striking price. But call writing is generally more popular because it involves taking in option premium rather than paying it out. Still, there are times when one strategy is clearly superior to the other. This is one of those times. So, in this article, we’ll compare how stock owners should view the two in any environment and then specifically address the current environment.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 24 on December 22, 1993.
We have often stated that one can reduce the risk of stock ownership by buying call options instead. This, of course, is contrary to what many consider to be "conventional wisdom", in which option purchases are viewed as extremely risky things. As with most investments — and a lot of other things in life — it's a matter of application; every strategy can't be painted with a broad brush. We'll go over the way to make call option buying a lower-risk alternative to buying common stock, and then we'll apply it to a currently popular strategy involving the purchase of the highest-yielding Dow-Jones stocks at year-end.
This article was originally published in The Option Strategist Newsletter Volume 21, No. 12 on June 29, 2012.
A"call stupid" is a rather arcane and little-known term, which is used to describe a position in which a trader is long two calls at two different strikes (probably with the same expiration date). It is often offset by a short position in the underlying security.
This article was originally published in The Option Strategist Newsletter Volume 20, No. 21 on November 17, 2011.
We have written about the subject of protecting a portfolio of stocks with derivatives several times over the years, although it’s been a while (Volume 19, Numbers 6 and 12 had articles on the subject). Recently, some subscribers have inquired about how to calculate the amount of protection they need.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 3 on February 10, 2000.
We have often spoken about how to calculate or interpret implied volatility, and how to relate it to historic volatility. Some of these discussions have bordered on the theoretical, while others have been quite practical. However, we haven’t really addressed how implied volatility affects a specific option strategy.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 7 on April 13, 2000.
The CBOE’s Volatility Index ($VIX) has been a stalwart for option traders and technicians since it was introduced in the early 1990's. The $VIX measures the implied volatility of $OEX options. However, in recent months, the trading in $OEX options has slowed dramatically, and many traders have forsaken them for the more active and volatile equity options – especially NASDAQ options. As a result, $VIX is becoming harder to interpret. Therefore, we thought that perhaps another Volatility Index could be constructed as a useful supplement to $VIX. It would be a “supplement” rather than a “replacement” because there may come a day when most speculators return to the $OEX market. If that were to happen, then $VIX would regain its former place as a premier measure of public sentiment.
This article was originally published in The Option Strategist Newsletter Volume 15, No. 2 on January 26, 2006.
After a lengthy delay, the CBOE has announced that $VIX futures will begin trading on Friday, February 24th. We first wrote about these options last March (2005) when it seemed imminent that they would begin trading. However, there was a delay – a delay which is about over. In this article, we’ll lay out the specifications of the contracts once again, and refresh your memories on a few important points about how the contracts might trade.
First and foremost, it should be understood that these are options on the cash $VIX, much as there are options on $SPX or $OEX. These are not options on any of the Volatility or Variance futures. As a cashbased index option, they can be traded in a regular stock option account, with your favorite brokerage firm, just as index options can.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995.
When volatility increases, the option prices increase. This simple statement is the main philosophy behind owning options during periods of low volatility, especially if you think there is a fair chance of a price or volatility explosion occurring shortly after you buy your options. A strategist will generally prefer to own both puts and calls so that he can make money if the market moves up or down. Thus, owning a straddle (a put and call with the same striking price) or a combination (a put and a call with different striking prices) are the two simplest strategies that take advantage of increasing volatility. Another is the backspread, which we have been describing in a fair amount of detail all through the spring of this year. We currently have four backspread positions in place. We prefer the backspread to a straddle or a combination because it is easier to adjust the backspread as you go along, if you want to keep the position more or less neutral to market movement.