Selling short options as part of a swing trading strategy is a higher-risk strategy than the opposite focus on long options only; but the degree of risk might not be as severe as you think at first glance. This is true for seven reasons: You can cover the short call with ownership of stock. When… [READ MORE]

How do you place a value on options positions within a portfolio? Because of the nature of options, it is extremely difficult – if not impossible – to accurately balance an asset allocation target that includes derivatives. For example, a portfolio of $1 million specified the following targets: Large-cap 30% Mid-cap 10 International 10 Total… [READ MORE]

The short straddle is dangerous because, for one thing, both sides are short. Making things even riskier, one side or the other is always in the money. Even so, the true risk of the short straddle might not be as severe as traders assume. Consider how much risk is reduced in the following circumstances: Premium… [READ MORE]

A collar consists of three parts: 100 shares of long stock, one OTM covered call, and one long OTM put. The cost of the put is covered by income from the call. If the stock price rises, it gets called away. If the stock price falls, you exercise or sell the put. So why even… [READ MORE]