This article was originally published in The Option Strategist Newsletter Volume 15, No. 13 on July 13, 2006.
Whether or not the current market decline develops into something more severe – perhaps the elusive 9% (or 10%) correction or even a bear market – one is well-advised to gauge the risk of his strategies before trouble springs up. Most traders handle things on a “case by case” basis, or just figure they’ll play defense if they have to with a particular option or stock position. But perhaps a better approach would be to try to judge the risk of one’s general strategy in light of what could go wrong. Often, it is the increase in implied volatility that is the bane of an option trader, as much as a decline in prices. In this article, we’ll try to formulate the basis for such a general approach.
This article was originally published in The Option Strategist Newsletter Volume 10, No. 21 on November 8, 2001.
Recently, we have been receiving a number of inquiries from stock holders who are intrigued by the idea of selling covered calls against a core portfolio of stocks. Several factors in the overall marketplace have piqued this interest: the bear market, the relatively high level of premiums that exists currently, the low level of dividend payouts on most stocks, and just a general feeling among stock holders that they need to “do something” to improve what is now going on two years of dismal results.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 9 on May 11, 1995.
Much is written about strategy and about establishing positions. If you're bullish, buy calls, buy bull spreads, or even backspreads. If you're bearish, opposing strategies will work. Then breakeven points are calculated, rates of return are estimated, and the position is established. End of story; go calculate your P&L. Or is it? What about follow-up action? So little is written about it that many traders figure it's a sort of a seat of the pants affair.
