This article was originally published in The Option Strategist Newsletter Volume 11, No. 23 on December 12, 2002.
As we head into the end of the year, it is time to turn our attention to matters such as the January Effect and other year-end tendencies. In recent years, the January Effect has changed its nature somewhat, but can still be a profitable item to trade. In addition, volatility patterns near year-end have a traditional look to them. We’ll take a look at both in this article, plus a couple of other oft-quoted “January barometers” to see if they really hold water or not.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 4 on February 13, 1992.
LEAPS is an acronym for Long-term Equity AnticiPation Securities. This is a wordy name for "long-term option". A LEAPS (or is it a LEAP?) is nothing more than a listed call or put option that is issued with two or more years of time remaining. It is therefore a longer-term option than one is used to dealing with. Other than that, there is no material difference between LEAPS and other calls and puts. Strategies involving long-term options are not substantially different from those involving shorter-term options. However, the fact that the option has so much time remaining seems to favor the buyer and be a detriment to the seller. This is one reason why LEAPS have been popular.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 23 on November 27, 1992.
The article that appears on our front page is generally meant to be informative and/or instructional. It often ties in with current market conditions, which means the topics are quite specific. We do, however, have a broader array of topics that we insert when market conditions warrant. This is one of those times. We will discuss the use of LEAPS (long-term options) as a substitute for stock ownership. Many brokerage firms and investment publications are proponents of this strategy. However, as you will see, it sometimes is over-rated.
This article was originally published in The Option Strategist Newsletter Volume 3, No. 4 on February 24, 1994.
One of our readers recently asked some astute questions concerning the implied volatility of long-term options versus short-term options. We thought it might make for a thought-provoking article. It is generally the case that implied volatilities of longer-term options are higher than those of short-term options (except when the underlying security has been very volatile in the near term). The relevant questions one might ask are "Why does this occur?" and "Should this occur?". We'll try to answer those questions in this article, although — as you'll see — those are not necessarily easy questions to answer in a practical sense, even though they might be in a theoretical sense.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 3 on February 14, 2002.
In looking at some of the questions that have been submitted to us through the Q&A section of our web site and at the Intensive Option Seminar that was recently held in Boca Raton, FL, it is apparent that a number of them have to do with expiration – how an individual trader should handle a trade, what price index options are settled at, how arbitrage might affect the market or an individual stock, and so forth. This article will address all of the questions that have been asked, by interspersing the questions with commentary that answers the questions and expands on the concepts.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 5 on March 8, 2001.
We receive a lot of questions here at McMillan Analysis Corporation – most of them come in from the Q&A section on our web site. The more generic (and interesting) questions and answers get posted on the site. Those that are specific get a personal email answer. One way or the other, they all receive an answer – although we do not comment on specific stocks or specific positions in your trading account. We also hear a number of questions at seminars (so far this year, we’ve attended four seminars), and that is where we got the idea for this article. One topic that people seem to want to discuss is that of “covered writing against LEAPS.” Many people think this strategy has little or no risk, based on some sort of historical studies.
This article was originally published in The Option Strategist Newsletter Volume 13, No. 3 on February 12, 2004.
Also known as the incremental return concept of covered call writing, this form of selling options against stock that is owned has several benefits that most investors don't realize. The goal of this strategy is to allow stock appreciation for a block of common stock between the current price and a selected target sale price, while also earning an incremental amount of income from selling options. The target sale price can be substantially above the current stock price. The typical investors positioned for this strategy are those with large stock holdings, interested in increasing current income, and wanting to refrain from selling the stock near current levels.
This article was originally published in The Option Strategist Newsletter Volume 3, No. 23 on December 8, 1994.
We have written a few articles about collars this year, but another one is appropriate because it is a strategy that can give one peace of mind in a market like this.
To review, a collar consists of long stock, a long out-ofthe- money put, and a short out-of-the-money call. The resulting position has limited risk, because of the ownership of the put. It also has limited profit potential, because of the presence of the short call. In general, investors don’t like to pay a lot of cash out of pocket for the put/call combo that sits on top of the stock. In fact, a “no-cost collar” is one in which the price of the call is equal to or greater than the price of the put when the position is established.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 16 on August 23, 2001.
Almost every day, some technician is quoted as saying that market breadth is strong – and, by inference, that there is an underlying positive tone to this market. The indicator that is often used to demonstrate this is the advance-decline (A-D) line – the daily difference between advancing and declining NYSE issues. Of course, we see the same figures. There have been more advances than declines on quite a few days in the last year or so – especially the last eight months. Yet the market continues to struggle. So where is all this supposedly positive action?
This article was originally published in The Option Strategist Newsletter Volume 14, No. 7 on April 15, 2005.
An “iron condor” (also sometimes simply called a “condor”) is the name applied to a rather basic strategy that has many adherents. In this article, we’ll define the strategy and give examples, but we also want to look at a possible way to improve upon the strategy by using a new product – $VIX options – which should begin trading soon.
The iron condor strategy is a fairly simple one – the sale of credit spreads both above and below the current (index) market price. Risk and reward are both limited, but rewards are more probable than the risks, assuming that all options are out of the money initially. Specifically, four striking prices are generally used, and thus the spread requires the payment of four commissions – making the strategy viable only for accounts with low commission costs.