Following is a summary of the strategies presented in this book:
- Basic long call
a. As a purely speculative position
b. Used to take advantage of price declines in stock
c. As a form of contingent purchase
- Basic long put
a. As a purely speculative position
b. Used to take advantage of price rise in stock (insurance for paper profits)
c. As a form of contingent sale of stock
- Basic uncovered call
a. A highly speculative position with unlimited risk
b. As part of a ratio write
- Basic uncovered put
a. As a form of contingent purchase
b. As part of a rescue strategy
- Put insurance (buying long puts to ensure current long-stock profits)
- Contingent purchase strategies
a. Long calls purchased as an alternative to buying stock
b. Puts sold to create a credit as well as contingent purchase
c. The covered long call with higher strike price, shorter expiring short calls
- Rolling strategies
a. Rolling forward to defer expiration while creating a credit
b. Rolling short calls forward and up to defer or avoid expiration and to increase potential exercise price
c. Rolling short puts forward and down to defer or avoid expiration and to reduce potential exercise price
d. Rolling back—exchanging a current option position for one expiring sooner
- Ratio write
a. Creating partially covered positions with some degree of risk
b. Modified to eliminate all risk by buying high calls to offset short exposure
- Rescue strategies
a. Short puts to create a credit and, if exercised, to reduce average basis
b. Covered calls to reduce paper loss
c. Two-part combination of short puts and, when exercised, converting to covered calls
- Forced exercise (intentional exercise using covered calls)
- Spread strategies
a. Long spread, high risk requiring adequate price movement
b. Short spread with uncovered positions—high risk
c. Short spread involving covered call and uncovered put–conservative when fundamental criteria and assumptions are present
- Straddle strategies
a. Long straddle, high risk requiring substantial price movement
b. Short straddle with uncovered positions—extremely high risk
c. Short straddle combining covered call and uncovered put—ultimate conservative strategy with higher-than-average returns, if fundamental criteria and assumptions are present
- 1-2-3 iron butterfly
a. Low risk with low collateral requirements as long as short and long sides are matched, or long side exceeds number of shorts
b. Incomer producing idea, best with strikes one point apart
c. High risk if uncovered short side is allowed, requiring collateral equal to 100 percent of strike value; also presents exercise risk when not covered by long side
- Dividend collar
a. Very low risk when strikes are selected above stock basis
b. If exercise produces capital gain, no loss occurs
c. Eliminates stock market risk while yielding double-digit annualized returns from monthly dividend yield, but only when net option trades create breakeven or credit