Add training workflow, datasets, and runbook
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Chapter 9
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GaininG ExposurE
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This chapter is designed as an encyclopedic listing of the main strategies
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for gaining exposure (i.e., buying options) that an intelligent option inves-
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tor should understand. Gaining exposure seems easy in the beginning be-
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cause it is straightforward—simply pay your premium up front, then if the
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stock moves into your option’s range of exposure by expiration time, you
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win. However, the more you use these strategies in investing exposure, the
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more nuances arise.
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What tenor should I choose? What strike price should I choose?
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Should I exercise early if my option is in the money (ITM)? How much
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capital should I commit to a given trade? If the stock price goes in the
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opposite direction from my option’s range of exposure, should I close
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my option position? All these questions are examples of why gaining
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exposure by buying options is not as straightforward a process as it
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may seem at first and are all the types of questions I will cover in the
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following pages.
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Gaining exposure means buying options, and the one thing that an
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option buyer must never lose sight of is that time is always working against
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him or her. Options expire. If your options expire out of the money (OTM),
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the capital you spent on premiums on those options is a realized loss. No
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matter how confident you are about your valuation call, you should al-
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ways keep this immutable truth of option buying in mind. Indeed, there
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are ways to reduce the risk of this happening or to manage a portfolio in
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