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Taking Some Chips Off The Table (LEAPS As A Stock Substitute) (04:12)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 12 on June 21, 1995. 

With the market being so high, many individual investors and institutional money managers as well are wondering what to do with these profits. Completely exiting the market is not a viable alternative for many, and is prohibited by charter for some institutions. However, there is a way in which one can reduce his downside exposure while still retaining upside profit potential — he can sell his stock and replace it with LEAPS call options.

The Basics: Covered Straddle Writing (04:13)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 4, No. 13 on July 13, 1995. 

Most option traders quickly realize that time is a very heavy factor weighing on the price of an option. This lesson often is driven home after buying an option and losing money.

Averaging Up vs. Averaging Down (20:03)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 20, No. 3 on February 10, 2011. 

Most traders are familiar with the concept of averaging down. It is almost a mantra as far as long-term investment strategies go; buyand- hold funds and investors often feel they are getting a bargain when they get a chance to average down. However, the strategy can be a disaster in certain circumstances.

A Quick Glossary of Stock Market Holiday Terms (14:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 14, No. 22 on November 23, 2005. 

As we enter the holiday season, the media will mix and match terms referring to the various Holiday-related trends of the stock market. They rarely get it straight, and as a result, they wind up confusing a lot of people. Here are the major ones:

Covered Writing: Aggressive or Conservative Money Management? (17:15)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 17, No. 15 on August 15, 2008. 

Trading or investing involves several facets of operation: trade analysis, money management (including trade execution and position size), and follow-up action (including exiting the trade). Most successful and experienced traders agree that trade analysis is the least important – contrary to what a novice would expect. In fact, I have seen a successful system trader state that he could turn any reasonable system into a profit through proper money management (i.e., through proper position sizing and follow-up action).

If one is too conservative, he can ruin a successful system (by stopping himself out at the tiniest hint of a loss, for example). On the other hand, if one is too aggressive – say, leveraging position size up too aggressively when profits exist, he will also fail because one small downturn will eventually be a disastrous loss.

Introducing our new Options Mentor: Mark Esposito

By Lawrence G. McMillan

Stan Freifeld and I started McMillan Options Mentoring 17 years ago to train students how to trade options successfully while reducing the inherent risks. Earlier this year, Stan decided not to take on any additional mentoring students. He will continue to lead the program and provide hourly consulting services to our customers.

Option Prices as a Predictor of Underlying Price (08:17)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 8, No. 17 on September 9, 1999. 

As most of our subscribers know, we often use option premium levels as an aid in predicting what might happen to the underlying instrument – whether it be an index, a futures contract, or stock. The way that we normally speak about option premium levels is to refer to the implied volatility of the options. Implied volatility is really an attempt to determine how volatile the underlying will be during the life of the option. As implied volatility increases, so does time value premium – and hence the option price. So that an option with a very high implied volatility will be a very costly option, and it will have a great deal of time value premium.

Event Trading Using Butterflies, Straddles and Calendars (19:4)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 19, No. 4 on February 25, 2010. 

We have recently recommended a couple of butterfly spreads involving earnings situations, while in the past we’ve used dual calendar spreads. In addition, we sometimes use straddle purchases for other events – such as FDA hearings. Butterflies and calendars are apropos for FDA events as well. In this article, we’re going to refine which strategy is best for which situation, for each has its own merits and deficiencies.

Money Management - Kelly Criterion & Stops (05:03)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 5, No. 3 on February 9, 1996. 

While speaking at two locations last week — Futures Magazine's "Futures South" and Option Vue's Seminar — it became apparent that traders and investors want guidance on money management. Not only do they want trade recommendations, but they want some guidance in the realm of how much to invest in a position, and how to properly place stops.

Using T-Bills To Collateralize Option Transactions (Preview)

By Lawrence G. McMillan

This is a topic that has been so long-forgotten that it seemed like it might make a good article now, or at least provide a “refresher” for those who might remember it. Now that interest rates are actually high enough to “matter,” traders who need to put up collateral margin can benefit from the old technique of buying T-Bills with the cash in their account. If the T-Bills mature within 6 months, the trader can use up to 99% of the value of the T-Bills for collateral margin purposes, while earning the T-Bill rate on their cash. The 90-day T-Bill rate right now is about 3.75% (annual), which is more than any brokerage firm is paying you on your cash balances. The best rate at a brokerage firm is probably Interactive Brokers (IB) which is paying 2.58% on the cash balance in excess of $10,000 in your account.

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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.
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