We recommend that you contact your broker for guidance. For more information
on wash-sale rules and other tax-related matters, call 1-888-OPTIONS
(678-4667) for free guide on “Taxes & Investing – A Guide for the Individual
Investor”.
What do Options have to offer?
Listed options are uniquely flexible financial instruments that offer
investors a variety of uses. They can be used alone, or in conjunction with
the ownership of individual stocks or a portfolio. First and foremost, options
are instruments of risk transfer. They can be used to increase an investor’s
market exposure with limited, predetermined risk, or to reduce the financial
market risk an investor might be subject to by holding an individual stock or
a portfolio of stocks.
Much like stocks, options can be used to take a position on the market, in an
effort to capitalize on an anticipated market move up or down. Unlike stocks,
however, options can provide an investor the financial benefits of leverage
over a position in an individual stock or a basket of stocks reflecting the
broad market. At the same time, options buyers also can take advantage of
predetermined, limited risk. Option writers on the other hand, assume
significant risk if they do not hedge their positions.
Where can I find options with large open interest so I can guarantee that I
can find adequate size for my option order?
A common misconception is that volume and open interest equate with liquidity.
While higher trade activity may create added liquidity through competition,
each option has market-makers and professional traders who have taken on the
responsibility of making a market for all of the series that they represent.
By asking your broker for a "two-sided market with size" you can find out how
many contracts are bid or offered at any time during the trading day. For
public customers, I'd be surprised if, in most cases, there weren't at least
10 contracts on the bid and ask and maybe up to 100. So, don't let the volume
fool you into thinking that there's not any liquidity in the market, because
there's always "a market" -- unless the option is so out-of-the-money that
nobody has any interest in a purchase or in very unusual market conditions,
such as a trading halt in the underlying. For example, if an option has less
than 5 trading days left and is 10 points out-of-the-money, you may not find
anyone that would want to own that contract. Then, the market might be 0 bid -
.20 ask.
When you look at open interest, which is simply the number of outstanding
contracts, what you're seeing is an indication of which options were
previously the most active. If you feel it's really important to trade only
options with a high level of activity, you can find volume and open interest
data at the following web site locations:
Optionclearing.com, Market Data
area,
Optionsclearing.com, Volume Query or
888options.com,
Search Series.
This book describes just about every
fundamental strategy you could try with options. It covers the total return
concept of covered call writing, the pros and cons of option buying, examines
various types of spreads (vertical, calendar, and diagonal) and the various
delta (price) neutral strategies. If you have to have only one book on options,
this will be it.
Spend less than you earn! People who spend every penny
they make usually end up going broke.......
Take enough risk on the money you save! Playing safe by
putting your money under the mattress or in a savings account
will not make you wealthy..
Remember that.....Fully one-fifth of humanity, some 1.3 billion people,
struggles to survive on less than $1 per day. About 40% of
humanity survives on less than $2 per day. More than a billion
people around the world will go to bed hungry tonight. Life
expectancy in some 32 countries is less than 40 years. If you
have a few extra dollars in your pocket (you don't have to be a
millionaire to make a difference), please share some of your
financial good fortune with others who are in great need.
Think About It... Being in the 'now' brings a freedom, unlike living
in the past or in the future, which is a kind of imprisonment.
This isn't a kind of a denial where you pretend life doesn't have
problems. Life is full of problems, but most of those stresses
and failures are reliving old hurts or worrying about future
concerns. -- Carl Honore
When you 're diagnosed with cancer, you start to
bargain with God: "Let me get through this, and I'll take better
care of myself. I'll get my priorities in order. I'll learn to
live every day to the fullest." Isn't it sad that you have to get
sick before giving yourself permission to live life to the
fullest? -- Robert Schimmel
Look at Life in different & Positive ways
