This article was originally published in The Option Strategist NewsletterVolume 4, No. 1 on January 12, 1995.
Buying options is often regarded as one of the most speculative activities. However, as we have shown time and time again, there are often differing ways in which one can establish a strategy. These different ways may change the speculative to the conservative, or at least moderate things somewhat. Buying options is no exception.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 13 on July 8, 1993.
Two strategies are equivalent when they have the same profit potential. That is, their profit graphs have the same shape. More experienced option traders know that an understanding of equivalent strategies or positions is vital. It can help in many ways. For example, one may be able to more effectively use his capital by establishing the more favorable equivalent strategy. Or, when trading, he may be able to get a better execution. Finally, he may be able to make better adjustments to his positions by using equivalent strategies. The concept is not new, but even a veteran trader may have to sort through some equivalences in order to choose the best position.
The S&P 500 Index ($SPX) has made new all-time closing highs on the last three days. Other indices are following most notably the Dow ($DJX) and NASDAQ (QQQ and Composite).
There is support on the $SPX chart at the old highs (2940- 2950) and below that, where there was more work done, at 2890- 2910.
The equity-only put-call ratios remain strong and on buy signals, as those ratios continue to drop rapidly.
This article was originally published in The Option Strategist Newsletter Volume 11, No. 6 on March 29, 2002.
As this stock market continues to trade in a wide range, it is becoming more and more frustrating to all manner of participants – whether they be traders, investors, or option speculators. While I don’t claim to have done a thorough survey of a broad array of traders, I can tell you that the frustration is evident among those that I have spoken with. They include day traders, short-term traders, mutual fund managers, and investment advisors (newsletter writers). About the only ones who seem to be happy (but they are nervous) are naked option writers. They have been making money – as long as the striking prices of the written options are outside of the trading range – but they recognize (at least the smart ones do) that with volatility this low, a price explosion is possible at any time (hence, their nervousness).
This article was originally published in The Option Strategist Newsletter Volume 1, No. 30 on June 25, 1992.
Futures option margin requirements for customers are generally more logical than equity or index option requirements. For example, if one has a conversion or reversal arbitrage in place, his requirement would be nearly zero for futures options, while it could be quite large for equity options. Moreover, futures exchanges have recently introduced a better way of margining futures and futures option portfolios -- the SPAN system (Standard Portfolio ANalysis of Risk). SPAN is designed to determine the entire risk of a portfolio, including all futures and options. It is a unique system in that it bases the option requirements on projected movements in the futures contracts as well as potential changes in implied volatility of the options in one's portfolio. This creates a more realistic measure of the risk than the somewhat arbitrary requirements that were previously used (called the "customer margin" system) or than those used for stock and index options.
$SPX pulled back this week, partly because the market was overbought and also because the week after June expiration is a seasonally weak week. So far, it's just a normal pullback, with support at 2890-2900.
Equity-only put-call ratios remain strongly on buy signals. Their downward trajectory was not even fazed this week, as they held steady to their buy signals even while $SPX corrected a bit.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 1 on January 7, 1993.
The real value in being able to use the options when a future is locked limit up or limit down, of course, is to be able to hedge one's position. Simplistically, if a trader came in long the August soybean futures and they were locked limit down as in the above example, he could use the puts and calls to effectively close out his position.
This article was originally published in The Option Strategist Newsletter Volume 4, No. 7 on April 13, 1995.
Credit spreads using options are a popular strategy. In this article, we'll define them, see how they work, and attempt to assess their true profitability. They have been growing in popularity recently, partially for the wrong reasons, as we will see later in the article.
There is a seasonality to volatility that has persisted over the years. Not every year is the same, of course, but the general pattern is similar. This can sometimes be useful in helping one determine whether to expect increasing or decreasing volatility during the life of positions that are being established.
The prospect of lower rates in both Europe and the U.S. has driven the market into a bullish stampede, as it seems to be on a massive "high."
There should now be support on the $SPX chart at 2890-2900, the area which was most recently overcome as resistance. Below there, it's a sharp drop down to the major support at 2720-2730 (the March and June lows). There is no formal resistance, since we are trading at new all-time highs.