Option Strategies

[james_gsx 16]

Okay, I really don't know a lot about option strategies but I want to learn. I have been looking over stuff at think or swim, but I'm not going to lie I'm lost. I don't want to trade them, but I want to use them in aid with my investment vehicles.

 

So lets take some hypothetical charts and see what kind of potential strategies could be applied. Lets say we have a beautiful uptrending chart, obviously just buying a call would be very risky. So what could we do here? Sell a put, buy a call... what?

 

Lets say I own AAPL for a long term position, but I want to hedge against the current volatility. How would I go about doing so?

 

Sorry these questions are so basic, but for some reason it just doesn't click with me when I read it online. I'm hoping one of your explanations will make sense and it will be easier to understand.

[darthtrader 10]

Just get "Option Volatility & Pricing" by Sheldon Natenberg. Its so clear and well done i'm not sure why anyone else even bothers trying to write about options to explain them.

To hedge you could cover your position, 1 contract for ever hundred shares with atm puts long or sell covered calls. The bullish thing, there is a bunch you could do but alot would depend on what the greeks look like, Sheldon explains those perfectly. I remember someone telling me when I was trying to wrap my head around them that options are more 3 dimensional with a stock being 2 dimensional.

I think once you understand them enough though you will realize you don't really want to bother with them.

[Nick1984 10]

Learn the Greeks! Thats probabbly one of the things options users would say. Look into Black Scholes cause its an options pricing model that actually won them a model. You can create ceratin spreads with options to capture moves in different types of market conditions. You can take bull spreads, bear spreads, butterflies, straddles etc... It's much more complicated than futures and its more pricey cause you have to pay the premium to buy a contract.

 

You could play a very risky game and write naked puts or calls and rake in some quick cash but thats a highly risky game and you'll probabbly loose out on that.

 

For hedging personally I think futures are better! If your stock matches the movements of an index very closely than hedge with a futures contract! Options may be a bit easier to use for hedging however depending on the size of the portfolio you want to hedge.

[Soultrader 12]

Just get "Option Volatility & Pricing" by Sheldon Natenberg. Its so clear and well done i'm not sure why anyone else even bothers trying to write about options to explain them.

To hedge you could cover your position, 1 contract for ever hundred shares with atm puts long or sell covered calls. The bullish thing, there is a bunch you could do but alot would depend on what the greeks look like, Sheldon explains those perfectly. I remember someone telling me when I was trying to wrap my head around them that options are more 3 dimensional with a stock being 2 dimensional.

I think once you understand them enough though you will realize you don't really want to bother with them.

 

Thanks darthtrader. I was actually searching for a good options book. Will check that out.

[aiki14 10]

The "Complete Options Player" by Ken Trester is good although it might be too much of a textbook for the casual reader.

[TinGull 10]

As I've posted many times...check out redoption.com and optionplanet.com . They are ToS educational companies and offer TONS of great info regarding different strategies. Also, the CBOE has webinars for free that you can watch.