Explore Your Options
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it on the Stocks & Commodities website Message-Boards. Answers will be posted there, and selected questions will appear in future issues of S&C.
Here’s a question I get asked at almost every option event at which I teach: “Tom, how do I hedge 10 shares of Google?” Until recently, my answer used to be, “Get 90 more shares, and then we can talk.” But as of March 18, 2013, my answer has changed.
On that date, the Chicago Board Options Exchange (CBOE) launched a new product called mini-options aimed at the smaller investor (in this case, an investor who holds less than 100 shares of some higher-priced stocks) who is looking to hedge odd-lot securities.
Recently, a question came out of left field: What are the best options to buy or sell for a daytrader? In the world of option trading, there are the few who wish to daytrade options. Trading options is a skill, but daytrading them requires a different skill set. My first inclination was to answer “Don’t do it,” but in this industry, “don’t” and “can’t” are not in the trading vocabulary.
There are roughly 4,000 indexes, exchange traded funds (ETFs), and stocks that are optionable. Not all options are created equal.
At a recent seminar, I was asked what might be the best way to take advantage of a stock that drops after an earnings disappointment. I knew what stock he was talking about — Apple (AAPL). Just a week earlier, I had created a case study for AAPL just after the earnings report. Here’s a typical post-earnings drop on a big-name stock, as well as one strategy to look at trading when this occurs.
Dogs of the Dow is a stockpicking strategy devoted to selecting high-dividend stocks. Over time, the dogs have yielded about 50% more per year on average than simply buying the Dow Jones Industrial Average (DJIA). The last few years, however, the dogs have been mixed. Will this trend continue, or is there safety in buying the dogs in the event that the market will continue to stabilize?
How does a credit spread work?
There are several types of spreads, but they all work similarly. Option spreads can be used to take a bearish, bullish, or neutral position. For example, let’s look at a credit spread, which is what a spread is called when it generates a net inflow of cash into your account.