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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.

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.

What Does a Statistical "Edge" Mean? (02:23)

By Lawrence G. McMillan

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.

Some Thoughts On Covered Call Writing (11:04)

By Lawrence G. McMillan

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.

Protection for Stock Owners (09:13)

By Lawrence G. McMillan

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.

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