33 lines
2.5 KiB
Plaintext
33 lines
2.5 KiB
Plaintext
366 Part Ill: Put Option Strategies
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on a case-by-case basis, the general philosophy should be to hold on to the April com
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bination. A profit is already guaranteed at this time - the worst that can happen is a
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3-point profit (the original credit). Consequently, the strategist should allow himself
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the opportunity to make large profits. The strategist may want to attempt to trade out
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of his long combination, since he will not risk making the position a losing one by
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doing so. Technical analysis may be able to provide him with buy or sell zones on the
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stock, and he would then consider selling out his long options in accordance with
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these technical levels.
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In summary, this strategy is very attractive and should be utilized by strategists
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who have the expertise to trade in positions with naked options. As long as risk man
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agement principles of taking small losses are adhered to, there will be a large proba
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bility of overall profit from this strategy.
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PUT OPTION SUMMARY
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This concludes the section on put option strategies. The put option is useful in a vari
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ety of situations. First, it represents a more attractive way to take advantage of a bear
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ish attitude with options. Second, the use of the put options opens up a new set of
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strategies - straddles and combinations - that can present reasonably high levels of
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profit potential. Many of the strategies that were described in Part II for call options
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have been discussed again in this part. Some of these strategies were described more
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fully in terms of philosophy, selection procedures, and follow-up action when they
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were first discussed. The second description the one involving put options - was
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often shortened to a more mechanical description of how puts fit into the strategy.
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This format is intentional. The reader who is planning to employ a certain strategy
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that can be established with either puts or calls (a bear spread, for example) should
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familiarize himself with both applications by a simultaneous review of the call chap
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ter and its analogous put chapter.
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The combination strategies generally introduced new concepts to the reader.
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The combination allows the construction of positions that are attractive with either
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puts or calls (out-of-the-money calendar spreads, for example) to be combined into
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one position. The four combination strategies that involve selling short-term options
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and simultaneously buying longer-term options are complex, but are most attractive
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in that they have the desirable features of limited risk and large potential profits. |