This article was originally published in The Option Strategist Newsletter Volume 13, No. 22 on November 24, 2004.
This post-election rally has been a strong one and has produced extremely overbought readings – especially among indicators that use market breadth, such as our breadth oscillators or the Arms Index. In fact, the “stocks only” breadth oscillator recently registered the third highest reading in its history. We have often told you that such overbought conditions at the beginning of a new bullish phase are positive, not negative, indicators. In this article, we’ll quantify that statement by showing how the market performed after previous extremely overbought readings.
This article was originally published in The Option Strategist Newsletter Volume 13, No. 3 on February 12, 2004.
One of the most tantalizing, yet dangerous, items in all of trading is the expensive option. From an elementary viewpoint, one would like to sell the option and collect the time value premium decay as it wastes away to nothing. But, more often than not, the options were expensive for a reason, so the option seller suddenly finds himself fighting the trend of a volatile movement by the underlying. In this article, we're going to discuss a few of the things to look for and then suggest a strategy that might be a "middle ground" where a skew is also involved with the expensive option (which it often is).
This article was originally published in The Option Strategist Newsletter Volume 4, No. 14 on July 26, 1995.
We have written about portfolio protection using options in the past, but with the relatively large number of questions coming from subscribers about this topic, it appears to be time to revisit it. We will go through an example using a small, but highly volatile portfolio. This is the type that seems to be worrying individual investors the most; they are, of course, happy with the profits that have built up in the tech stocks, but are nervous about how to protect those profits.
This article was originally published in The Option Strategist Newsletter Volume 9, No. 17 on September 14, 2000.
Covered call writing is not a subject that we often discuss in this newsletter. There are several reasons for that, which we’ll get into in just a moment. However, there is a certain type of covered call write – one in which the call is quite expensive – that sometimes attracts traders looking for a “free ride.” To a certain extent, this strategy is something of a free ride. As you might imagine, though, there can be major problems (we’re still looking for that illusory free lunch on Wall Street, but haven’t ever been able to find it).
This article was originally published in The Option Strategist Newsletter Volume 12, No. 9 on May 8, 2003.
The 30th anniversary of the Chicago Board Option Exchange (CBOE) occurred on April 26th. In some ways, it seems so short – hard to imagine that 30 years have passed since listed options began trading. In other ways, though, the market has evolved so much since then, that it seems like ancient history. Whichever viewpoint you have (or if both statements seem correct to you, at times), all can agree that the listing of options has been a magnificent success in that it has brought option trading to the masses – with 2.5 or 3 million contracts trading on most days.
This article was originally published in The Option Strategist Newsletter Volume 1, No. 22 on November 12, 1992.
In the last issue, we looked at some of the rewards and pitfalls of calendar spreads using index or equity options. This week, we'll take a look at the calendar spread using futures options.
This article was originally published in The Option Strategist Newsletter Volume 8, No. 20 on October 28, 1999.
There are various trading strategies – some short-term, some long-term (even buy and hold). If one decides to use an option to implement a trading strategy, the time horizon of the strategy itself often dictates the general category of option which should be bought – in-the-money vs. out-of-the-money, near-term vs. LEAPS, etc. This statement is true whether one is referring to stock, index, or futures options.
This article was originally published in The Option Strategist Newsletter Volume 8, No. 13 on July 8, 1999.
After having spoken at many conventions and seminars, I would say the most common general question that I am asked is “Should I be a speculator or should I trade hedged positions?” There is no pat answer to that question, for part of the answer depends on the individual’s penchant for what he feels comfortable doing. That aside, it might be enlightening to look at the track records of The Option Strategist hedged portfolio and speculative portfolio as a means of determining at least some of the factors that one would use in making the determination as to whether to be a hedger or a speculator.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 7 on April 8, 1993.
Many strategists like to position themselves so that they can make money when the underlying security swings wildly, rather than having to scramble as naked option sellers must during such wild price swings. One strategy that allows the strategist to do this is the "backspread". In general a backspread consists of selling an in-the-money option and then buying a larger quantity of out-of-the-money options, all on the same underlying instrument. Some traders even use a broader definition, preferring to use the term "backspread" to refer to any strategy in which one can make money on large price moves; by this alternate definition, straddle purchases and combination purchases would qualify as backspreads as well. For the purposes of this article, we will stick with the first, more restrictive definition.
