Options

Wednesday, 8th September 2010

Option Strategies

Written by George Traganidas Topics: Options, Wealth Building

Option Strategies

There are a lot of option strategies and each one of them should be used in the appropriate situation. The guide below is a summary of a series of articles about the stock strategies. This summary will help you to identify which strategy to use in which situation so you can maximise your profits and reduce your loses. I will update the list below as a find new information about the strategies or as I learn new ones.[…]

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Wednesday, 8th September 2010

Bearish Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
February 11, 2010

Why use bearish spreads?

  • To profit on a falling stock or index while capping your risk.
  • To earn strong percentage returns on a moderate move in an underlying investment.
  • To lower the cost of bearish put option purchases.[…]

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Wednesday, 8th September 2010

Bull Call Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jim Gillies
August 25, 2009

Why use bull call spreads?

  • Capital gains: To profit on a stock you feel relatively bullish on.
  • Defense: To limit your capital at risk and lower your break-even point compared with just buying calls alone.
  • Leverage: To land an oversized potential return on your net cost, although you sacrifice additional upside.[…]

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Wednesday, 8th September 2010

An Introduction to Spreads

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
February 11, 2010

Why use spreads:

  • To profit on the movement in a stock while capping your potential loss at a pre-determined amount — though you cap your potential profit as well.
  • To purchase options with less cash up-front, which in turn helps leverage your potential returns.
  • To earn sizable percentage gains even on modest moves in the underlying stock.[…]

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Wednesday, 8th September 2010

Writing Straddles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
November 18, 2009

Why write a straddle?

  • You believe a stock or index is going to hold steady or stay in a tight range.
  • You believe a stock that was recently volatile will settle down considerably.
  • You believe the market’s overall volatility is going to decrease.[…]

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Wednesday, 8th September 2010

Buying Straddles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
October 7, 2009

Why buy a straddle?

  • You believe a stock or index will move dramatically, but you don’t know which way.
  • You believe volatility will increase in general, so the value of the options you’re buying will increase.
  • You want to leverage potential returns when the underlying investment moves meaningfully in either direction, but limit your risk.[…]

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Wednesday, 8th September 2010

Strangles

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
March 12, 2010

Why use strangles?

  • You buy (“buy to open”) a strangle to profit on a sharp move in a stock, whether up or down.
  • You write (“sell to open”) a covered strangle to profit when a stock stays within a wide range — or, if it doesn’t, to get a better buy price on new shares or a higher sell price on existing shares.[…]

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Wednesday, 8th September 2010

Diagonal Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jim Gillies
September 28, 2009

Why use diagonal calls?

1. If you’re mildly bullish on a stock and want to generate income from a leveraged investment.
2. To profit from a range-bound stock.
3. If your underlying stock is chosen well, and you’re handed a little market luck, you can wake up a year or two hence with a significantly in-the-money call option that effectively costs you nothing.[…]

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Wednesday, 8th September 2010

Stock Repair

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Who should use the stock repair strategy? Someone who is:

  • Down 15% to 25% on a stock and willing to forego profits to sell at breakeven.
  • Not interested in averaging down or holding for the long haul.
  • Using a margin-approved account and can write call options.[…]

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Wednesday, 8th September 2010

Synthetic Shorts

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com By Jeff Fischer August 10, 2009 Feeling bearish? If you’re looking to profit when stock prices slip, there’s a way to use options to mimic shorting a stock — but with distinct advantages. To set up this “synthetic short” position, you sell a call option and simultaneously buy a put option, using the same […]

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Wednesday, 8th September 2010

Synthetic Longs

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Are you confident about a stock, but reluctant to pony up the cash to buy it today? A synthetic long may be just the ticket.

This option strategy works nearly the same as owning the underlying stock outright — except you don’t need to pay up front. Usually, you’ll set up a synthetic long on a stock if you foresee a strong catalyst for appreciation in the next 18 months or so. As the stock price goes up, your options gain value along with it, sometimes to a much greater degree.[…]

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Wednesday, 8th September 2010

Protective Collars

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Protective collars are useful in bear markets or when you’re uncertain about a stock’s valuation risk. They can also be a prudent way to protect your gains on stocks that have recently leaped in price, nearing your estimate of fair value. Let’s explain how collars work, starting from the beginning.[…]

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Wednesday, 8th September 2010

Writing Covered Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Why use covered calls?

  • Income: To generate cash on a stable stock.
  • Defense: To profit if a stock you own slips in price.
  • A better sell price: To obtain a higher price when you’re ready to sell.[…]

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Wednesday, 8th September 2010

Writing Puts

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Jeff Fischer
August 10, 2009

Why write puts?

  • Income: To make money while waiting for your preferred buy price on a stock.
  • Advantage: To buy stocks at a lower net cost.
  • Profit: To earn income from stocks you believe will hold steady or increase modestly.[…]

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Friday, 23rd July 2010

Buying Puts

Written by George Traganidas Topics: Options, Wealth Building

Buying a put gives you the right to sell the underlying stock at a set price (the strike price) by a specified date (the expiration date). Your maximum loss with a put is limited to what you pay for the option up front (the premium).

Buying put options is a great way to profit from a stock’s fall while putting less of your cash at risk. In addition, you can buy puts to protect a stock – one that you’re bullish on for the longer term – from a near-term price drop. Buying protective puts can also help make your portfolio immune to a market crash.[…]

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Friday, 23rd July 2010

Buying Calls

Written by George Traganidas Topics: Articles, Options, Wealth Building

Fool.com
By Nick Crow
August 12, 2009

Why buy calls:

  • You believe a stock has a strong catalyst for appreciation over the coming months or few years.
  • You want to benefit from a stock’s upside, but put less capital at risk than buying the stock outright.
  • You want to leverage your bullish expectations on a stock you already own.[…]

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Wednesday, 9th June 2010

Options Glossary

Written by George Traganidas Topics: Options, Wealth Building

Options Glossary

American style: Options contracts that can be exercised at any time after purchase and before the expiration date.

Assignment: When the options writer (also called the seller) is forced to buy (for a put writer) or sell (for a call writer) the underlying stock. Essentially, your counterparty has exercised its option contract, which you wrote, to buy or sell the underlying stock.

At-the-money: An option whose underlying stock is trading at its strike price.

Bearish: An options strategy (and outlook) that achieves its maximum payoff when the underlying stock drops in price. For example, if you are bearish on a stock you know well, you could buy a put or a bear put spread.[…]

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Wednesday, 9th June 2010

Introduction to Options

Written by George Traganidas Topics: Options, Wealth Building

Introduction to Options

Why Options?

Options are excellent tools for generating income, protecting profits, hedging, and, ultimately, earning outsized gains. They can generate returns in flat markets, cushion the blow of down markets, and be outstanding performers in decent markets. Whatever your investment goals, options can be a powerful addition to your portfolio, used to hedge, to short, to produce income, and to obtain better buy and sell prices.

What Are Options?

Stock options formally debuted on the Chicago Board Options Exchange in 1973, although option contracts (the right to buy or sell something in the future) have been around for thousands of years. An option gives the holder the right, but not the obligation, to buy or sell an underlying stock at a set price (the strike price) by a set date (the expiration date). The option contract allows you to profit if a stock moves in your favor before the contract expires. Not all stocks have options, only those with enough interest and volume. There are only two types of options: calls and puts. A call appreciates when the underlying stock rises, so you buy a call if you are bullish on that company. A put appreciates when a stock declines. You buy a put if you believe a stock will fall or to hedge a stock that you already own.[…]

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