Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (paperback)
- By Michael C. Thomsett
- Published May 13, 2005 by FT Press.
- Copyright 2005
- Dimensions: 6 X 9
- Pages: 288
- Edition: 1st
- ISBN-10: 0-13-701713-8
- ISBN-13: 978-0-13-701713-3
- eBook (Watermarked)
- ISBN-10: 0-13-204486-2
- ISBN-13: 978-0-13-204486-8
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Product Author Bios
Michael C. Thomsett has written over sixty books on investment and financial topics, including Stock Profits: Getting to the Core (Financial Times-Prentice Hall 2004) as well as the best-selling Getting Started in Options (now in its Sixth Edition, with over 200,000 sold, John Wiley & Sons 2005) and The Leaps Strategist (Marketplace Books 2004). His Investment and Securities Dictionary (McFarland & Company 1986) was named Outstanding Academic Book by Choice Magazine.
Thomsett lives in Port Townsend, Washington.
© Copyright Pearson Education. All rights reserved.
If you're an investor concerned with preserving capital, maximizing predictability, and maintaining consistently strong returns, your best solution just might surprise you: Options. In Options Trading for the Conservative Investor, Michael C. Thomsett reveals a narrow band of options strategies that can help you improve results as you systematically reduce unnecessary risk throughout your portfolio.
Thomsett, author of the global best-seller Getting Started in Options, writes in simple, nontechnical language, uses real examples, and guides you through every strategy–one easy step at a time. He's made this book simple and visual enough for any experienced investor to use, even if they have no experience trading options.
Thomsett systematically covers several options strategies optimized for conservative investors, including covered call writing on carefully selected stocks, contingent purchase strategies, and powerful "combination" strategies that produce cash to bolster current income. No matter how cautious an investor you are, this book will give you powerful new tools for achieving your financial goals–without losing a moment of sleep.
28 of 28 people found the following review helpful
Lot of repetition,
Amazon Verified Purchase(What's this?)
This review is from: Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (Hardcover)I would consider myself a value investor and don't buy stocks with large p/e, p/book or p/sales ratios. I never considered options, because I thought they were only for speculators, until I read an article in Barron's mentioning options in a conservative way. Then I came across this book, and I have to say, it is exactly what I was looking for. It explains in a great way how to use options when you're serious about "investing" and not a gambler/speculator.
The book doesn't of course tell you how get rich quick (otherwise it would not be a good book). But it tells you how to take advantage of market conditions without adding risk to your stock portfolio (with the exception of the risk of lost optortunity). The book uses actual excamples (using closing prices of October 2004) and walks you through most of the scenarios with real option/stock prices, which is a great feature.
The only negative I have with this book, is, as my review title states, that he keeps... Read more
37 of 40 people found the following review helpful
The Elusive Dream: Higher Returns without Added Risk,
This review is from: Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (Hardcover)Most conservative and moderate investors will tell you they seek increased returns without adding additional levels of risk to their portfolios.
They are not adverse to risk; they just seek to control it. In short, they seek to
1. Preserve spending power after both inflation and taxes.
2. Seek to avoid unacceptable market, liquidity and diversification risks.
3. Protect profits without loss of invested positions.
If you fit this investment profile, then Michel C. Thomsett has written this book for you. In it he demonstrates how carefully selected options strategies can help you consistently improve your returns without adding additional portfolio risk. Options, he argues, do not have to be exotic, high risk or complicated. In fact, they can be employed as a powerful tool to reduce risk.
He wisely sets his ground rules early in the book. They are:
1. Limit options activity to stocks you have... Read more
21 of 22 people found the following review helpful
Did Thomsett proofread this?,
This review is from: Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (Hardcover)I think that this book could be helpful in following a conservative option strategy. However, there are a number of errors in the book that make for confusion. For example, on both pages 197 and 220, there is an instance in the middle of discussions involving straddles where "spread" has erroneously replaced "straddle". The chart on page 213 is useless due to printing being superimposed on printing. I would guess that the latter error is the printer's fault but the former errors are either the author's or editor's fault. For $34.95 I expect more care in the publishing of a book like this.
› See all 20 customer reviews...
Table of Contents
About the Author.
1. Setting the Ground Rules.
The Ground Rules
A Model Portfolio
2. Option Basics.
The Workings of Option Contracts
Option Attributes to Determine Value
Intrinsic and Time Value Premium
Long-Term Options and Their Advantages
Strike Price of Options
The Time Advantage for Short Sellers
Long and Short
Taking Profits Without Selling Stock
Buyer and Seller Positions Compared
Understanding Short Seller Risks
Calls and Call Strategies
Is the Strategy Appropriate?
Option Terms and Their Meaning
The Cost of Trading
In, At, or Out of the Money
Puts and Put Strategies
The Overlooked Value of Puts
The Insurance Cost of Puts
Conservative Guidelines: Selling Puts
Puts as a Form of Contingent Purchase
Listed Options and LEAPS Options
Using Long Calls in Volatile Markets
Using LEAPS Puts in a Covered Capacity
Coordinating Strategies with Portfolio Goals
Option and Stock Volatility: The Central Element of Risk
Critical Analysis of Volatility
Free 20-Minute Delayed Quotes
The Black-Scholes Model
Identifying Your Market Opportunities
Limiting Your Strategies to Conservative Plays
Identifying Quality of Earnings
Trading Costs in the Option Analysis
Calculating the Net Profit or Loss
Tax Rules for Options: An Overview
The Importance of Professional Advice and Tax Planning
3. Options in Context.
The Nature of Risk and Reward
Using Volatility as the Primary Risk Measurement
Options Used to Mitigate Stock Investment Risk
Another Kind of Volatility
Lost Opportunity Risk and Options
Perceptions About Options
Finding the Conservative Context for Options Trading
Strategic Timing and Short-Term Price Changes
Short Positions, Naked or Covered
The Uncovered Call-A Violation of the Conservative Theme, Usually
A Stock's Likely Lowest Theoretical Price Level
Short Put Risks-Not as Drastic as Short Call Risks
Margin Requirements and Trading Restrictions
Other Margin Rules
Return Calculations-Seeking Valid Comparisons
Return If Exercised
Return If Expired
Long-Term Goals as a Guiding Force
Exercise as a Desirable Outcome
4. Managing Profits and Losses.
Your Conservative Dilemma
Deciding How to Establish Your Policies
Managing Profits with Options
Basing Decisions on the Fundamentals
The Reality of Risk
Overcoming the Profit-Taking Problem
Realizing Profits Without Selling Stock
Further Defining Your Personal Investing Standards
When a Rescue Strategy Is Appropriate
Reverting to a Secondary Strategy
Managing the Inertia Problem
Taxes and Profits
Options Used for Riding Out Volatility
5. Options as Cash Generators.
The Covered Call Concept
Who Makes the Decision?
Examples: Ten Stocks and Covered Calls
Working within Pre-Established Standards
Calculating the Gain Comparatively
Smart Conservative Ground Rules
A Conservative Approach
Tax Ramifications of Covered Calls
Six Levels of Separation (of Your Money) for Taxes
Rolling Forward and Up-Exercise Avoidance
The Types of Rolls
The Exercise Acceptance Strategy
Remembering to Limit Yourself to Conservative Strategies
6. Alternatives to Stock Purchase.
Leverage and Options
Applications of Contingent-Purchase Strategies
The Long-Call Contingent-Purchase Strategy
Diversifying Exposure with Several Stocks in Play
Reducing Contingent Purchase Risks
The Covered Long Call
Extrapolating Future Strike Prices
Using the Forward Roll Effectively
Short Puts and Contingent Purchase
The Value of Selling Puts
The Value of Shorter Exposure Terms
Rescue Strategy Using Calls
Rescue Strategy Based on Smart Stock Choices
Programming a Profitable Result
The Ratio Write-Before Adjusting to Make It Conservative
Converting the Ratio Write into a Conservative Strategy
Ratio Writes for Rescue Strategies and Higher Current Returns
Rescue Strategy Using Puts
The Risk of Continued Price Declines
Covered Calls for Contingent Sale
Picking the Right Conditions for Forced Exercise
7. Option Strategies in Down Markets.
Thinking Outside the Market Box
Remembering the Fundamentals
Conservative Versus Speculative: Remembering the Difference
The Long Put: The Overlooked Option
When the Stock's Price Rises
When the Stock's Price Falls
Short Puts: A Variety of Strategies
Conservative Ground Rules for Short Puts
Comparing Rates of Return for Dissimilar Strike Prices
Three Types of Rescue Strategies
Using Calls in Down Markets
Calls Used for Leverage, but Not for Speculation
Evaluating Your Stock Positions
Rescue Strategies and Opportunity
Examining the Causes of Price Volatility
Deciding When to Sell and Replace Stock
Stock Positions and Risk Evaluation
The Relationship Between Stock Safety and Options
Examining Your Risk Profile
Options and Downside Risk
The Down-Market Benefits of Options
Option Planning with Loss Carryover
Timing: Matching Current-Year Profits and Losses
8. Combination Conservative Techniques.
Advanced Spread Terminology
Short Straddles for Conservative Positions and High Rates of Return
Long or Short Positions
Mixing the Long and the Short
Theory Versus Practice
Simplicity as a Worthy Goal
Worst-Case Outcome as a Desirable Result
Tax Problems with Combination Strategies
The Anti-Straddle Rule and Its Effect
The Ultimate High-Return Strategy
A Review of Your Conservative Assumptions
Examples of the Strategy in Practice
Pick Your Portfolio
Pick Expiration Dates
Review Trading Range Trends
Look for Available Options and Strike Prices
Select Stocks for the Short Combination Strategy
Planning Ahead for Each Outcome Scenario
The Augmented Strategy-A Short Straddle
How the Dollar Values Alone Can Mislead
Maximum Advantage: Large-Point Discounts
Three Valuable Rescue Strategies
9. Stock Selection and the Option Contract.
Remembering Your Conservative Profile as a Priority
Dangers and Pitfalls in Using Options
Allocation by Risk Profile
Using Options to Reduce Market Risk
Temptation to Select Most Volatile Stocks
Creating a List of Potential Investments
Creating Sensible Conservative Standards
The Five Conservative Standards for Stock Selection
Maintaining Fundamental Clarity
Distinctions: Risk Standards Versus Brand Loyalty
The Importance of Taxes in the Option Equation
Five Tax Guidelines
Option Volatility to Judge Stocks
Volatility as an Early Indicator
Appendix: Option Trading Strategies.
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