In past issues of The Option Strategist Newsletter, we have stated that we mainly utilize naked put sales rather than covered call writes in its traditional form – even for cash accounts. Several readers have asked not only how this works, but why we do this. So let us explain.
I was recently asked what guidelines I generally follow in my option trading. This is actually a rather thought-provoking question, especially when it regards something one does almost every day. In our feature articles, many useful general strategies have been given, but not assembled all in one place. After giving the matter some thought, it seemed like it might be beneficial to list some of the "rules" that we follow, either consciously or sub-consciously after all these years.
Naked put-selling is a very popular and potentially profitable trading strategy, but choosing what puts to sell can sometimes be a guessing game. McMillan's Probability Calculator Software is a very helpful tool for analyzing potential put-sales since it can estimate the chances of making money in your positions.
This market is becoming the ultimate in defying bearish opinion. Since June 1st, $SPX has advanced almost exactly 150 points and is nearly back to the yearly highs -- and therefore at a post-2008 high. Yet, bearish opinion is still rather rampant.
$SPX remains within the rising trading channel that extends back to early June (see Figure 1). It is near the top of the channel, so in that sense, it is "overbought."
Equity-only put-call ratios continue to remain on buy signals.
In this video recorded at the TradersExpo Las Vegas, Lawrence McMillan, founder of McMillan Analysis, explains what he means by a "90% day," and why it can provide important signals for both traders and investors.
Options for Volatile Markets: Managing Volatility and Protecting Against Catastrophic Risk, the follow up to Richard Lehman and Lawrence G. McMillan's New Insights on Covered Call Writing, is finally available on our website. Considering the current market conditions, the timing couldn't be more appropriate.
With the current uncertainty in the stock market, the $VIX index has once again received a lot of financial media coverage. Last week we recommended the purchase of $VIX calls as a hedge for your portfolio. We received numerous comments from people who took our advice but didn't seem to understand how $VIX options price.
In this video recorded on June 17th at The TradersExpo Dalls, Larry McMillan discusses the predictive power of the put-call ratio indicator and predicts the rally at the end of June 2011. Larry also talks about the rare CBOE equity only put-call ratio signal and the total put-call ratio and what they mean for the market.