Options Installment Strategies presents variations on the well-known calendar spread and demonstrates how specific strategies work well in short-term swings and even during extended periods of consolidation. In this book, a range of effective and creative strategies set out a conservative hedging system. This involves the combination of long-term long positions offset by short-term short positions in various configurations.
The contingent options plan described in this book methodically builds an explanation of the system, beginning with an exploration of chart-based trade timing, followed by an examination of proximity and risk. It is disturbing that these two topics—chart reading and the nature of risk—are too often excluded from publication about options trading. Focus on the more immediate details of how to structure a trade is important to develop an understanding of a strategy, but even before selecting a favorite trade, you must understand risk; and for that, observing proximity between the option and the underlying price is essential.
The next topics in the book are stock selection through fundamental analysis and timing of trades with exceptionally effective technical signals. These are the core of stock selection that leads to development of risk hedges with exceptional effectiveness. Too often, “hedging” is viewed as a method for eliminating risk on high-risk stocks. As an alternative, it makes more sense to first identify and buy low-risk stocks and then hedge market risk.
The next topic addressed is elimination of long-term market risk. Every investor who owns stock worries constantly about decline in a stock’s price. The paper losses suffered as a result can lead to long-term realized losses, but this is not inevitable. The LEAPS put, bought as an insurance put, eliminates all market risk. In the traditional description of the insurance put, the risk cap occurs at the net of stock purchase price minus the cost of buying the put. In the risk hedge described in this book, the cost of the put is eliminated through a series of offsetting installment sales.
- Chart-Based Trade Timing
- Proximity and Risk
- Picking the Right Stock
- Timing with Well-Selected Technical Signals
- Long-Term Market Risk Elimination
- Long-Term Contingent Purchase
- Short Options and Levels of Risk
- Alternative Offsets Beyond Short Calls or Short Puts
- Combining the Short Offset Alternatives
- Expanding the Strategies
- Managing Potential Losses
- Recovery Strategies
- The Flexibility of Options Hedging