Options trading logic. Options Trading Blogs
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InvestmentNews: Eric, what do you see in your travels around the country educating advisers about options?
But the OIC is agnostic in that we spread the gospel by providing free resources and educational outreach. This is how advisers should consider project online earnings options in their practice.
Financial advisers are beginning to become proactive, not reactive, in terms of incorporating options as a part of their overall asset allocation models. So there is an appetite out there for advisers to start to learn about this, and we have seen a tremendous increase in terms of registration at our website, but also for the advisers to understand that their clients are coming out to our free education.
Without getting into the textbook definition, what I think the importance of an option is, and what has been somewhat of the mystique of options, is important to say before we get into options. As a money manager, I tell all of our clients that if they are the family chief financial officer or if they have jobs as money managers, their core task, whether they know it or not, is to seek alpha.
The first thing options trading logic have to do is understand them. Eric mentioned the OIC advisers site.
We help options traders learn how to make smarter, more profitable trades.
And there are different portals whether your broker-dealer provides that kind of information. The buy-and-hold strategies have come under question here lately and a lot of questions are coming from the client side to where people are looking for ideas.
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When you own a stock and you sell a call, you can sell the stock at a price at which you preset the level. And options trading logic can do the same thing with the stock.
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So you get a little bit more bang for your buck. The benefits of the strategy are that it reduces the implied volatility in the return.
There are other factors that they must consider. Those factors are the price of the underlying investment, the time to expiration and implied volatility.
In this way, delta and gamma of an option changes with the change in the stock price. We should note that Gamma is the highest for a stock call option when the delta of an option is at the money.
Cavanaugh: If our job is to risk less and make more. A covered-call strategy is a good way to accomplish that task. Cavanagh: Let me say a quick word about Value Line [Inc.
What we do at Value Line on an equity basis and on an options basis is, we look at the entire market and make comparisons. Our job is to look at the entire listed equity options market and come up with evaluations based on numbers alone. There is very little subjective input when we make our estimations.
So we use statistical models and then we use the very same Value Line option ranks to come up with our evaluations.
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It puts us in a nice position with a product — available on a retail or small-level institutional basis — that really has an evaluation on every single option out there. Getting back to your question about how this might apply to the actual adviser, I think there are a number of things the adviser wants to do.
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The adviser should look options trading logic the types of stocks that clients have in their portfolios and the type of investment styles they want to pursue, and build their options strategies around those characteristics.
If somebody is a lot more aggressive and wants to play the market in certain ways, rather than trading in and out of stocks or doing large index trades, one can use the options to take advantage of the various swings in the market one way or the other.
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InvestmentNews: Eric, maybe you could explain some of the terms Larry used — volatility, put strategies and such. Cott: Sure, and again, Lawrence has mentioned some key strategies, especially in this economy right now. Again, the problem I think for advisers a lot of the time is that they have sort of two important things in their lives. In an environment like today, how do I add extra income?
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So in general, implied volatility increases when the market is bearish and decreases when the market is bullish. So it really defines the industry in that it explains the risk and rewards even before you jump in with your client. Do you run into that a lot? How much can an individual adviser actually do in options?