fbpx option education | Option Strategist

option education

$VIX Hedging Strategies For Stock Owners (13:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 13, No. 5 on March 11, 2004. 

In the last issue, we spelled out the details of the CBOE’s new volatility contracts, which are due to be listed on March 26, 2004. In this issue, we’ll spell out some strategies that every stock portfolio owner should consider – whether or not you currently trade options and/or futures. These new contracts (futures symbol: VX) are dynamic in that they will provide a hedge for you during a declining market, no matter when that decline occurs, and no matter where the market is when the decline begins. This is a vast improvement over, say, buying puts for insurance purposes. We’ll spell out the mechanics of operating such a hedging strategy, and we’ll look at some of the problems that may occur – at least as we can envision them from this vantage point in light of the fact that actual trading has not yet commenced.

A Simple Stock Protection Strategy (07:02)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 7, No. 2 on January 22, 1998. 

From questions that subscribers have asked, and from conversations with other option professionals, it seems that there is a rather large contingent of stock owners who own stocks that are now at losses, and they want to know if options can help them out at this point. So, this article will discuss a simple strategy that can be used for these purposes – the stock “repair” strategy of placing a call spread on top of a long stock position.

Hedged Option Sales (07:11)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 7, No. 11 on June 11, 1998. 

An option strategist is often faced with a difficult choice when it comes to selling (overpriced) options in a neutral manner -- i.e., “selling volatility”. Many traders don’t like to sell naked options – especially naked equity options – yet many forms of spreads designed to limit risk seem to force the strategist into a directional (bullish or bearish) strategy that he doesn’t really want.

First Day of the Month Trading System (21:22)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 21, No. 22 on November 30, 2012. 

We often trade the first day of the month, since we have done a considerable amount of research on the subject.

The table below shows the gains from trading $SPX on only the first day of the month. That is, it is theoretically bought at the close on trading on the last trading day of the previous month, and it is sold at the close of the first trading day of the new month.

January Approaches (11:23)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 11, No. 23 on December 12, 2002. 

As we head into the end of the year, it is time to turn our attention to matters such as the January Effect and other year-end tendencies. In recent years, the January Effect has changed its nature somewhat, but can still be a profitable item to trade. In addition, volatility patterns near year-end have a traditional look to them. We’ll take a look at both in this article, plus a couple of other oft-quoted “January barometers” to see if they really hold water or not.

Understanding LEAPS (01:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 1, No. 4 on February 13, 1992. 

LEAPS is an acronym for Long-term Equity AnticiPation Securities. This is a wordy name for "long-term option". A LEAPS (or is it a LEAP?) is nothing more than a listed call or put option that is issued with two or more years of time remaining. It is therefore a longer-term option than one is used to dealing with. Other than that, there is no material difference between LEAPS and other calls and puts. Strategies involving long-term options are not substantially different from those involving shorter-term options. However, the fact that the option has so much time remaining seems to favor the buyer and be a detriment to the seller. This is one reason why LEAPS have been popular.

LEAPS as a Stock Substitute (01:23)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 1, No. 23 on November 27, 1992. 

The article that appears on our front page is generally meant to be informative and/or instructional. It often ties in with current market conditions, which means the topics are quite specific. We do, however, have a broader array of topics that we insert when market conditions warrant. This is one of those times. We will discuss the use of LEAPS (long-term options) as a substitute for stock ownership. Many brokerage firms and investment publications are proponents of this strategy. However, as you will see, it sometimes is over-rated.

Why are LEAPS More Expensive? (03:04)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 3, No. 4 on February 24, 1994. 

One of our readers recently asked some astute questions concerning the implied volatility of long-term options versus short-term options. We thought it might make for a thought-provoking article. It is generally the case that implied volatilities of longer-term options are higher than those of short-term options (except when the underlying security has been very volatile in the near term). The relevant questions one might ask are "Why does this occur?" and "Should this occur?". We'll try to answer those questions in this article, although — as you'll see — those are not necessarily easy questions to answer in a practical sense, even though they might be in a theoretical sense.

Expiration – Facts and Fiction (11:03)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 11, No. 3 on February 14, 2002. 

In looking at some of the questions that have been submitted to us through the Q&A section of our web site and at the Intensive Option Seminar that was recently held in Boca Raton, FL, it is apparent that a number of them have to do with expiration – how an individual trader should handle a trade, what price index options are settled at, how arbitrage might affect the market or an individual stock, and so forth. This article will address all of the questions that have been asked, by interspersing the questions with commentary that answers the questions and expands on the concepts.

Covered Writing Against LEAPS (10:05)

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 10, No. 5 on March 8, 2001. 

We receive a lot of questions here at McMillan Analysis Corporation – most of them come in from the Q&A section on our web site. The more generic (and interesting) questions and answers get posted on the site. Those that are specific get a personal email answer. One way or the other, they all receive an answer – although we do not comment on specific stocks or specific positions in your trading account. We also hear a number of questions at seminars (so far this year, we’ve attended four seminars), and that is where we got the idea for this article. One topic that people seem to want to discuss is that of “covered writing against LEAPS.” Many people think this strategy has little or no risk, based on some sort of historical studies.

Pages

Option Strategist
Blog Search

Recent Blog Posts

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
Visit the Disclosure & Policies page for full website disclosures.

-->