Options Installment Strategies (eBook)

Michael C. Thomsett has been writing for a living since 1978 and has published more than 90 books. These include 12 options books. His best-selling Getting Started in Options has been published in ten editions and sold more than 300,000 copies. The 10th edition has been renamed Options (The Essential Guide for Getting Started in Derivatives Trading).  He also has developed and presented options webinars, and operates a financial education website, Money Craft. Thomsett is a frequent speaker at trade shows and investment conventions. He blogs on Seeking Alpha, Options Money Maker, Steady Options and other social media.

Preface: Why a Contingent Method? 5
Contents 9
List of Figures 13
List of Tables 15
1: Chart-Based Trade Timing 16
The Key to Profitable Trades 17
Advantageous Price Levels 19
Price Patterns 21
Candlesticks (Eastern) 23
Western Price Indicators 25
Non-price Signals 26
Strong Fundamental Trends 27
2: Proximity and Risk 30
Proximity and Moneyness 32
Proximity to Expiration 33
Proximity of Price to Resistance or Support 34
Strongest Reversal Proximity 37
Proximity in Consolidation Trends 39
Risks in Every Strategy 41
Collateral Requirements 42
Options and Market Risk 43
3: Picking the Right Stock 45
Fundamental Risk 46
The Effect of Fundamental Trends on Options Risk 47
Contingent Purchase and Stock Selection 49
Contingent Sales as Risk Hedges of Stock 51
Dividend Yield and Trends 53
Debt to Total Capitalization Ratio and Trend 54
P/E Annual Ranges 58
Revenue and Earnings Trends 59
4: Timing with Well-Selected Technical Signals 62
Entry and Exit Timing 63
Resistance and Support 65
Bollinger Bands 66
T-Line 67
Gaps and Tops or Bottoms 69
Rounded Tops or Bottoms and Island Reversals 70
Candlestick Reversal 72
Candlestick Continuation 73
Volume Indicators 74
Momentum Oscillators 75
Moving Averages 77
5: Long-Term Market Risk Elimination 79
The Nature of Underlying Risk 80
The Risk Hedge with Long Puts 83
The Trade: Long-Term Long Put and Short-Term Short Positions 84
Calculating the Point of Risk Elimination 87
Possible Outcomes 89
6: Long-Term Contingent Purchase 92
Locking in the Future Price 92
The Risk Hedge for Future Purchase 95
Calculating the Point of Risk Elimination 97
Possible Outcomes 99
7: Short Options and Levels of Risk 104
Unavoidable Risks 104
Risk Hedge Exercise 105
Contingent Purchase Exercise 106
Covered Calls for Risk Reduction 109
Uncovered Puts for the Same Risk Profile 111
Uncovered Calls and Varying Risk Levels 112
Picking Calls or Puts Based on Price Proximity 113
Exploiting Time Decay 115
8: Alternative Offsets Beyond Short Calls or Short Puts 117
Synthetic Stock 117
Vertical and Diagonal Spreads 121
Straddles and Strangles 125
Iron Butterfly 128
Closing the Long-Term Option at a Profit 130
9: Combining the Short Offset Alternatives 132
Current Price Proximity 132
Proximity of Strike to Resistance or Support 133
Proximity of Price to Strike 134
Proximity of Reversal Signals to Resistance and Support 135
Historical Volatility 137
Combining the Alternatives 139
Multiple Increments and Combinations 145
10: Expanding the Strategies 147
Rolling Techniques 148
Long Collars 149
Long-Term Long Straddles and Strangles 152
Short-Term Short Straddles, Strangles and Spreads 155
Covered Straddles and Strangles 156
Straps and Strips 158
Long Strap 158
Long Strip 159
Multiple Option Contracts 161
11: Managing Potential Losses 163
Short Positions at Risk 164
Covered Calls 164
Uncovered Calls 165
Uncovered Puts 165
The Advantage of Time Decay 166
Reducing Risk Exposure: Moneyness and Timing 167
Avoiding Ex-dividend Periods 168
Avoiding Earnings Week 169
Short-Term Expiration Advantages 173
12: Recovery Strategies 174
Protective and Responsive Loss Offsets 175
Protective Offset 175
Responsive Offset 176
Selective Rolling 176
Closing and Taking Losses 178
Entering New Positions with Higher Risks 179
Expanding Exposed Spread Positions 179
13: The Flexibility of Options Hedging 181
The Hedging and Leverage Advantage 181
Installment Variations Based on Changing Conditions 183
Adjusting to Sudden Price Movement 184
Reducing Risks with Long-Term Hedging 186
Bibliography 188
Index 191