Comments on: How to Be Risk-Averse http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/ Wed, 17 Feb 2010 23:34:57 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Jared http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/comment-page-1/#comment-771 Jared Sat, 14 Nov 2009 20:38:07 +0000 http://www.condoroptions.com/?p=2584#comment-771 Bernard: In addition to simplicity, another reason I discussed using longer-dated options was to help reduce the effects of time decay. Buying far out of the money put options each month and letting them expire (as they will do, most of the time) may not be as cost-effective as purchasing something with a longer time to expiry and then exiting that position well before it expires. We offer consulting services should you wish to explore these issues in more detail. Bernard: In addition to simplicity, another reason I discussed using longer-dated options was to help reduce the effects of time decay. Buying far out of the money put options each month and letting them expire (as they will do, most of the time) may not be as cost-effective as purchasing something with a longer time to expiry and then exiting that position well before it expires.

We offer consulting services should you wish to explore these issues in more detail.

]]> By: Bernard http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/comment-page-1/#comment-768 Bernard Sat, 14 Nov 2009 11:59:16 +0000 http://www.condoroptions.com/?p=2584#comment-768 I perfectly fit your target audience. Not very experienced in investing ... and found your article very helpful. Thank you! I am going to adopt this or a similar strategy and I think it will make me sleep better! :-) One question: Wouldn't it be much cheaper to buy monthly puts and keep buying new ones every month? When I looked up the option quotes I saw that I could get a $80 put for SPY for mid December for about 5c. That would be 12x5c= 60c per share per year - ok 70c with commissions and fees - for 12 monthly contracts compared to almost 4 $ for a December 2010 put. I can see that if the stock market were to slowly go down over the year the $80 puts would get more expensive. I don't know how the put prices were in the months before the recent market crashes in 2008 and 2009, but weren't these crashes quite unexpected? Were the monthly puts getting significantly more expensive before these events? I can see two scenarios: an unexpected market crash in which case this strategy seems cheaper or a prolonged downward trend in which case the puts would get more and more expensive but then couldn't I not switch to going short on spy or buying a short spy etf instead of buying puts. I know you wanted to present something really simple for people like me but I am willing to learn a little more and put in some work myself. Any advice would be appreciated. Thanks Bernard I perfectly fit your target audience. Not very experienced in investing … and found your article very helpful. Thank you! I am going to adopt this or a similar strategy and I think it will make me sleep better! :-)

One question: Wouldn’t it be much cheaper to buy monthly puts and keep buying new ones every month? When I looked up the option quotes I saw that I could get a $80 put for SPY for mid December for about 5c. That would be 12×5c= 60c per share per year – ok 70c with commissions and fees – for 12 monthly contracts compared to almost 4 $ for a December 2010 put.

I can see that if the stock market were to slowly go down over the year the $80 puts would get more expensive. I don’t know how the put prices were in the months before the recent market crashes in 2008 and 2009, but weren’t these crashes quite unexpected? Were the monthly puts getting significantly more expensive before these events?

I can see two scenarios: an unexpected market crash in which case this strategy seems cheaper or a prolonged downward trend in which case the puts would get more and more expensive but then couldn’t I not switch to going short on spy or buying a short spy etf instead of buying puts.

I know you wanted to present something really simple for people like me but I am willing to learn a little more and put in some work myself. Any advice would be appreciated.

Thanks

Bernard

]]> By: Jared http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/comment-page-1/#comment-767 Jared Fri, 13 Nov 2009 21:30:27 +0000 http://www.condoroptions.com/?p=2584#comment-767 I like collars, too, and the second variation of the strategy in this post writes 8 120 calls versus the 16 long puts to help offset the cost but retain some "black swan" profit potential. A more conservative investor could write 8 calls and buy 8 puts for a more traditional collar approach. I don't know how complicated all this looks to an average investor who isn't experienced with options, so I was hesitant to discuss anything more advanced than that in this context. Anyone looking for more information on hedging strategies should check out Mark's book, which I reviewed here: http://www.condoroptions.com/index.php/books/the-rookies-guide-to-options-review/ I like collars, too, and the second variation of the strategy in this post writes 8 120 calls versus the 16 long puts to help offset the cost but retain some “black swan” profit potential. A more conservative investor could write 8 calls and buy 8 puts for a more traditional collar approach. I don’t know how complicated all this looks to an average investor who isn’t experienced with options, so I was hesitant to discuss anything more advanced than that in this context.

Anyone looking for more information on hedging strategies should check out Mark’s book, which I reviewed here:
http://www.condoroptions.com/index.php/books/the-rookies-guide-to-options-review/

]]> By: Thursday links: odd call buying | Financial engineering resource center http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/comment-page-1/#comment-765 Thursday links: odd call buying | Financial engineering resource center Fri, 13 Nov 2009 11:06:48 +0000 http://www.condoroptions.com/?p=2584#comment-765 [...] How to become a more risk-averse investor using options.  (Condor Options) [...] [...] How to become a more risk-averse investor using options.  (Condor Options) [...]

]]> By: Mark Wolfinger http://www.condoroptions.com/index.php/strategy/how-to-be-risk-averse/comment-page-1/#comment-764 Mark Wolfinger Fri, 13 Nov 2009 03:46:39 +0000 http://www.condoroptions.com/?p=2584#comment-764 I've been writing about how individual investors can and should be using options to preserve the value of their portfolio. Mostly to deaf ears. I'm thrilled to see your post today. And I must confess, I've never considered the idea of owning extra puts because in general, puts are far too costly. I recommend the collar, and my comment/question is: why don't you suggest writing 8 calls to collect premium to help pay for the puts? Yes, it limits the upside, but isn't it worth mentioning this alternative so investors can decide? A reasonable call to write has a strike in the upper 120s. Or do you consider this approach to be too complicated? Best regards, Mark I’ve been writing about how individual investors can and should be using options to preserve the value of their portfolio. Mostly to deaf ears. I’m thrilled to see your post today.

And I must confess, I’ve never considered the idea of owning extra puts because in general, puts are far too costly.

I recommend the collar, and my comment/question is: why don’t you suggest writing 8 calls to collect premium to help pay for the puts? Yes, it limits the upside, but isn’t it worth mentioning this alternative so investors can decide?

A reasonable call to write has a strike in the upper 120s. Or do you consider this approach to be too complicated?

Best regards,
Mark

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