Choosing the Optimum Options Strategy

The Grand Hyatt in midtown Manhattan was the site of two more of the Option Industry Council’s option education seminars the week of March 19th. There were 190 attendees for the Intermediate Strategies session and 160 for the Advanced Strategies session. Let’s talk about the intermediate seminar now and I’ll cover the advanced session in a later blog.

During the Intermediate Strategies session I reviewed spread basics and then moved to comparing credit and debit spreads. You do know that a call debit spread and a put credit spread are almost the same, don’t you? No, don’t worry, you are not alone. Next up was straddles and strangles. Kinda, sorta the same, but not really the same, right? Didn’t know that either? Again, don’t worry. That’s the point of the OIC’s seminars. Most of the attendees were surprised to hear of the similarities shared by different strategies. Many attendees at the intermediate seminar are option users looking to expand their horizons. Strategies that were discussed included the Straddles, Strangles, time spreads, Covered Combos and the Stock Repair strategy.

I’m never surprised when I ask the audience if they find it harder to get out of a position than it was to get into that position. Most answer that yes it is harder to close than it is to open. It doesn’t seem to matter whether the position is making or losing money, many investors have trouble managing both losers and winners and managing both is one of the keys to success in the option world. This trouble (procrastination?) may lead to losing positions losing even more or may allow winners to turn into losers. Neither is an ideal outcome. The Stock Repair strategy is an example of one option strategy that may be used to help manage equity or ETF positions that have suffered a modest decline. With the repair strategy you may be able to back to even on a rally, but you give up any upside potential. Remember the old saying, “there’s no such thing as a free lunch”, turning a loser into even has a cost. If you have a hard time with the positions that are down moderately, then maybe the repair strategy will work for you, it’s worth looking into.

Have you ever felt that a stock you have been following is going to go up or down?  That the up or down move is going to be big and that it’s going to be sudden?  You ask yourself, how can I profit without picking a direction?  Well after this seminar you would know to consider buying an at-the-money (ATM) Straddle. That’s right; a long ATM Straddle gives you possibility of profiting from either up or down moves in the underlying security. Of course a profit is never guaranteed with any option strategy but the straddle gives you the opportunity to profit from moves in either direction.

The Stock Repair and the Long Straddle are just two examples of the variety of option strategies available to investors, there are many more. Remember, options give you options, but options involve risk and are not for everyone. If you are interested in any of the strategies mentioned in my blog, please contact your investment advisor for further information and be sure to know and understand the risks and rewards of any option strategy before entering into that strategy.