Articles

Short puts, collateral requirements

by Michael Thomsett

Continuing the discussion of short puts, one matter often overlooked in the discussion is the collateral discussion. The idea of “margin trading” has different meanings for short options than for trading stock. For options, margin is not only a vehicle for trading; it also refers to the collateral required in order to execute an uncovered… [READ MORE]

Short puts, the risk factor

by Michael Thomsett

In the previous article, the benefits of short puts were described. A fairly safe strategy, market risk for uncovered puts is identical to market risk of covered calls. Also like covered calls, there is a specific risk involved. To avoid the worst aspect of risk, avoid having open short calls that do not expire until… [READ MORE]

Short puts, the overlooked strategy

by Michael Thomsett

Traders, even those focused on the relatively low-risk covered call, all too often overlook the great advantages of the uncovered put. This is not a high-risk strategy. The market risk is identical to that of the covered call. In this and the next three articles, the short put is analyzed and compared. This article focuses… [READ MORE]

5-Part Test For Opening Covered Calls

by Michael Thomsett

Covered calls are considered universally safe. They create profits from option premium, capital gains and dividends. Some traders believe the covered call is so safe that it can be opened at any time. This is flawed thinking. If the stock price falls below your net basis, you have a paper loss. (Net basis is the… [READ MORE]

Covered Calls – Picking The Best Strikes And Expirations

by Michael Thomsett

When you write covered calls, you can produce greater profits by writing six two-month covered calls per year, than you will realize writing one 12-month covered call per year. Time decay for further-out options is quite slow, so writing options more than few months away is equal to lost time. Based solely on option premium… [READ MORE]

A reexamination of risk

by Michael Thomsett

  The inevitable question every options trader faces: “Is it high risk?” In evaluating a strategy, traders tend to put the risk label on everything. However, it examining the attributes that increase or decrease risk, the test should not be based on a trade’s attributes but on the situation. The chart of Amazon.com is used… [READ MORE]

Divergent bars

by Michael Thomsett

The “divergent bar” is any directional session moving opposite the current trend. As a reversal day, it signals a likely change from bullish to bearish, or from bearish to bullish. As a general rule, expect to see the day’s session open at a gap from the previous day, but to close within the range of… [READ MORE]

The “OOPS signal” trade

by Michael Thomsett

The “OOPS signal” was developed by trader and author Larry Williams. It was named for the all too common experience among traders, upon discovering that “Oops, we lost.” The system is programmed to create more profits than losses. So when the market opens lower than the previous day’s close, a trader places a buy-stop order… [READ MORE]

Options: Contrarian Ideas and Timing Of Trades

by Michael Thomsett

No matter how expertly you are able to time entry and exit in option positions, you face one specific risk not often raised or discussed: the risk of doing too much, too soon, and for the wrong reasons. This action arises any time an underlying price moves too quickly in one direction. Even though the… [READ MORE]

5 Ways To Compare Naked Puts And Covered Calls

by Michael Thomsett

Everyone has heard that writing naked or uncovered options is extremely high risk. This is not necessarily true. The covered call is risky because a stock’s value can fall below the net basis (cost of stock less premium received for the call). But when it comes to the naked put, it’s a different story. The… [READ MORE]

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