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.
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.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 23 on December 9, 1993.
We often speak of a position as being "statistically attractive". Many strategists who trade hedged positions have a vague idea of what that means, but would be hard pressed to cite specifics. In this issue, we're going to take a little more in-depth look at what, specifically, constitutes a statistical "edge". This will include looking at the way prices are distributed as well as delving further into the meaning and ramifications of volatility skewing. Then, we'll conclude by looking at a strategy that is currently popular in some circles.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 4 on February 28, 2002.
Covered call writing is not a particularly “sexy” topic – in fact, it’s a strategy that I don’t espouse nearly as often as it is practiced. However, it does have its uses – particularly for specific types of accounts. So, in this article, we’re going to take a fresh look at covered call writing – perhaps from a slightly different viewpoint than you’ve thought about it before. The types of statistics that are covered in this article are going to be available in the new subscriber section of our web site, The Strategy Zone.
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.
This article was originally published in The Option Strategist Newsletter Volume 12, No. 8 on April 24, 2003.
The concept of “delta neutral” is an intriguing one – especially to traders who have had a hard time predicting the market or to those who don’t believe the market can be predicted (random walkers). The concept is even sometimes “sold” to novice investors as a sort of “can’t-lose” trading method, even though that isn’t true at all. While the idea of having a position that can make money without predicting the direction of the underlying stock seems attractive, in practice the strategy is difficult, if not impossible, to apply – at least in terms of keeping a position delta neutral.
This article was originally published in The Option Strategist Newsletter Volume 15, No. 15 on August 10, 2006.
In the past couple of months, we’ve published several articles dealing with covered call writing and some of its companion strategies – naked put writing or put credit spread trading. Two issues ago, the feature article addressed some of the ways that potential bear market risk affects popular strategies, including covered writes. In addition, several of the Covered Writing articles (that usually appear on page 5) have discussed various aspects of naked put selling and credit spreading. We have also received a number of inquiries about these alternate strategies from current and potential money management clients. Therefore, we have compiled this article, which addresses all the aspects of these similar, yet distinct strategies – risk, reward, and suitability.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 2 on January 9, 1992.
All strategy recommendations made by "The Option Strategist" have a graph accompanying them that displays the delta of the entire position. Moreover, this graph also displays how the delta of the position is expected to change as the stock moves up or down in price. This article describes the position delta and how to best use it, especially for follow-up action.
This article was originally published in The Option Strategist Newsletter Volume 17, No. 4 on February 28, 2008.
Most option traders are acutely aware of their costs – especially commissions, but also bid-asked spreads, slippage, and so forth. But there is one area that can prove very costly to an option trader if he’s not aware of how to navigate it – and that is selling an option that should be worth parity, but is bid below that level. Most of the time – but not always – these “parity” situations arise at or near the option’s expiration date.
This article was originally published in The Option Strategist Newsletter Volume 8, No. 5 on March 11, 1999.
From questions asked at seminars and personal appearances, it seems that most people have some difficulty in determining which option to buy once the decision to buy something has been made. This topic is perhaps more elementary than some of the rather high-powered volatility discussions of the past few issues, but it is a very important one. The option speculator must be able to make the “correct” decisions about which option to own, lest the research that was done in order to predict the forthcoming direction of the underlying instrument be wasted by the purchase of the “wrong” call (or put).
