Making Money With Option Strategies is a practical, down-to-earth guide that introduces and fully explains an action plan to reduce risk in any stock portfolio. There are many options books available already and they fall into two major categories – basic primers limited to explaining the terminology and market of options and more advanced books discussing theory and pricing models of options.
Options trading is a paradox. It can be highly speculative or highly conservative, or both, depending on when and how it is used. This paradox can be employed to respond to the unceasing symptom of investing in the stock market: Those who buy shares of stock worry, no matter how price moves. If price moves up, should you take profits now? If price moves down, should you cut your losses or buy more shares? Owning stock is a troubling activity because of the uncertainties it involves. Options—with the paradox they bring to the picture—can solve some of the risk issues for you.
A lot of focus in the market is on short-term trading opportunities, and these exist without any doubt. However, the more permanent value of options trading is not in short-term profit potential, but in how options can reduce risk in your portfolio. At the same time, reducing risk and generating income is an elegant combination of features. The flexibility of options is the great advantage; as a hedge against risk, an options position can also generate income and enable you to take profits without needing to sell shares. For most traders, identifying high-risk versus low-risk strategies is where emphasis is placed. This is not a simple matter, because the rapidly changing stock and options markets define emerging risks and opportunities that change from day to day and even from minute to minute. Within this ever-changing situation, today’s high-risk option can be tomorrow’s low-risk solution.
This suggestion—that “risk” is situational and not position-specific—is one way to look at options. In this book, the idea is demonstrated through examination of strategies designed to hedge positions, reduce risk, and generate income. The distinction between speculative and conservative is not merely an issue of which strategy you employ, but when and in what proximity a price is found. “Proximity” in this sense refers to how close the strike of an option (the price at which it can be bought or sold) is to the current price of the underlying stock. It also refers to how close price is to the top (resistance) or bottom (support) of the trading range. Reversal is most likely to occur when price is close to resistance or support, especially when price moves through these range borders. Reversal back into range is very likely; the trading range brings structure to the price chart, and significant events such as breakout above resistance or below support point the way to trading opportunities.
- The Basics of Options
- The Hedging Concept and Its Application
- Option Valuation and Portfolio Risk
- Speculation With Options vs. Conservative Strategies
- Charting and Trade Timing
- The Basic Covered Call
- The Uncovered Put: Alternative to Covered Calls With Less Risk
- Hedging With Spreads
- The Butterfly and Condor
- Collars and Synthetic Stock
- Straddles Hedged
- Rolling and Recovery Strategies
- Avoiding Early Exercise of Short Options
- Collateral and Tax Rules for Options Trading
- The Final Twist: Proximity
Making Money With Option Strategies: Powerful Hedging Ideas For The Serious Investor To Reduce Portfolio Risks By Michael C. Thomsett pdf