7 Risk Arguments of Swing Trading with Short Options

by Michael Thomsett

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]

Do Options Work in An Asset Allocation Program?

by Michael Thomsett

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]

Short straddle risks

by Michael Thomsett

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]

Three forms of profits from collars

by Michael Thomsett

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]

Options to maximize your portfolio

by Michael Thomsett

Options are one of several tools you can use to (a) optimize profits and (b) minimize and hedge risks in your portfolio. But you need to know specifically which options strategies are going to achieve this desirable two-part goal. Covered calls The covered call is a popular and widely understood strategy. You own 100 shares… [READ MORE]

Big dividend stocks and how to judge them

by Michael Thomsett

On the surface, it seems obvious that chasing big dividends is smart trading. But in practice, a double-digit dividend stock may also be a red flag. Because dividend yield is based on the dividend per share and current price per share, if the price plummets, the yield goes up. A high dividend could result from… [READ MORE]

Covered calls – ITM or OTM?

by Michael Thomsett

Covered calls work well, assuming the right strike is selected. It is not enough to pick a strike just because the premium is rich; that can be an expensive mistake. What strike proximity works best for covered call writing? The answer depends on several mitigating factors: What is your basis in the underlying? If your… [READ MORE]

Cover short options with calendar spreads

by Michael Thomsett

You probably have heard that you cannot cover short options, but must roll forward, close, or allow exercise. But there is another choice. One way to cover a short position is to own 100 shares of the underlying stock. Another, more creative way is to sell a shorter-term expiration position and buy a longer-term position… [READ MORE]

The stigma of pattern day trading

by Michael Thomsett

Is there a pattern to your trades? Anyone trading options knows how little effort it takes to build up a healthy volume of transactions. But you should be aware of one rule that could inhibit your ability to trade too often in the same option and in the same stock. In the past, day trading… [READ MORE]

5 swing trading ideas

by Michael Thomsett

Most swing traders use long stock for expected upswings; and either short stock for downswings or just stay out because shorting is high-risk. Two things are problematical with this idea. First, the risk should not be ignored; and second, you miss half of the swing opportunities by avoiding going short. There is a solution, and… [READ MORE]

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