The objective of the Option Sleuth is educate the investor on how a managed option strategy as part of a diversified portfolio can generate additional income and boost returns.

There are two basic types of options: the call and the put.

A call is an option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.

A put is an option contract that gives the holder the right to sell the underlying security at a specified price for a certain, fixed period of time.

Option contracts may be opened as a buy (long positions) or a write (short positions).

The following common option strategies are defined in terms of a net long position, however each strategy may also be opened as a net short position.

• Buy a call
Outlook on the underlying equity: Positive
Potential gain: Unlimited
Potential loss: Limited to price paid for call

• Buy a put
Outlook on the underlying equity: Negative
Potential gain: Limited to the value of the equity
Potential loss: Limited to price paid for put

• Buy a call spread (buy a call and sell a higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread

• Buy a put spread (buy a put and sell a lower strike put)
Outlook on the underlying equity: Negative
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread

• Covered call (buy equity, sell higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Varies
Potential loss: Limited to value of equity less price received for call

 
 
 
 

Sunday, June 28, 2009

Options Trading for the Conservative Investor by Michael C. Thomsett

This week's featured book on options trading:

Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk by Michael C. Thomsett

Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk
by Michael C. Thomsett
FT Press (March 2009)

From the publisher: If you're an investor concerned with preserving capital, maximizing predictability, and maintaining consistently strong returns, your best solution just might surprise you: options. In Options Trading for the Conservative Investor, Michael C. Thomsett reveals a narrow band of options strategies that can help you improve results as you systematically reduce unnecessary risk throughout your portfolio.

Thomsett writes in simple, nontechnical language, uses real examples, and guides you through every strategy–one easy step at a time. He's made this book simple and visual enough for any experienced investor to use, even if they have no experience trading options.

Thomsett systematically covers several options strategies optimized for conservative investors, including covered call writing on carefully selected stocks, contingent purchase strategies, and powerful "combination" strategies that produce cash to bolster current income. No matter how cautious an investor you are, this book will give you powerful new tools for achieving your financial goals–without losing a moment of sleep.

 • Fundamental ground rules for conservative options investors
 • What you should know and believe before you get started
 • How options fit into your conservative trading strategy
 • Deciding what stocks to buy or sell options on–and what to avoid
 • Examples and case studies based on an actual model portfolio
 • Practical guidance for leveraging each strategy with your own portfolio
 • Practical "rescue" strategies
 • Recovering your investments when market values have fallen
 • How to take profits without selling stock
 • Step-by-step techniques based on long puts and short calls

Also available: Options Trading for the Conservative Investor (Kindle edition). Learn more about the Amazon Kindle, a wireless reading device.

Posted by Your Community Resource Guide to Wine, Style, and Finance. at 3:21 PM

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