Using Options to hedge against stock positions so that the cost outlay and risk exposure is lower.
Tag: derivatives
Guide to Investing Options [Options Clearing Corporation]
1. Basics: When you purchase an option –> Long position Write an option –> Short position 2. Set your Strategy – Want more Income –> write Covered Calls – Protect the value of the stocks that you own – Purchase…
Volatility Skew Information
Volatility Skew – situation where individual options on a particular entity have different implied volatilities that form a pattern – the pattern can be a positive or negative skew Positive Skew (forward skew) – higher strikes, higher IV Negative Skew (reverse skew) – lower strikes, higher IV Horizontal Skew – long term options with lower…
About our Volatility Data – Implied Volatility and Historical Volatility
Estimate of the volatility of the underlying stock Low implied volatility –> Option considered cheap Don’t blindly buy or sell based on Implied Volatility. There may, in fact, be a good reason why the options are expensive. Perhaps the company is involved in a major litigation, or it is a biotech company that has a…
Covered Call Writing: Why Cash- Base Put Selling is Superior
Naked Put Selling = Covered call writing (but naked is better strategy due to lower cost) Covered call requires 2 commissions (stock and written call). If you want to sell, it will be another round of commissions. Naked Put – expires worthless Credits: https://www.optionstrategist.com/blog/2012/11/covered-call-writing-why-cash-based-put-selling-superior