Age, 149
Altria (MO), 55–56
Altria iron butterfly, 81–82
Annualized basis, 40, 44, 139, 167
Anticipation, 28
Anti-straddle rules, 136
Appreciated value, 73–74
Asset allocation, 62
AT&T (T), 53–54, 91
At the money (ATM), 14, 22, 167
Augmented strategy, 139
Average down, 2, 64, 107, 120, 154, 167
Bollinger Bands, 52, 53, 55, 56
Box spread, 130
Brand loyalty, risk standards vs., 157–159
Brokerage risk, 146
Butterfly spread, 131
Buyer vs. seller positions, 18
Buy–hold–sell technique, 59
Buying calls, 19–20
Buying option, 17, 21
Calculation of returns, 40–44
Call option, 14, 18–23, 167
Capital available, 96
Capitalization and working capital, 156
Carryover loss status, 66
Chart analysis, 33, 46, 49–53, 145
Altria (MO), 55–56
AT&T (T), 53–54
criteria, 49–53
Southern Co. (SO), 54–55
Closing purchase transaction, 21, 22, 65, 167
Closing sale transaction, 167
Collateral requirements, 85–86
Collateral risk, 145
Combination, 129, 167
advantage, 140
anti-straddle rules, 136
compare yields, 138
high-return strategy, 136–138
long and short options, 133–134
outcomes, 138–139
reversal indicators in, 50–51
simplicity, 134–135
spread techniques, 129–131
straddle, 131–133
tax problem, 135–136
terminology, spread, 131
theory vs. practice, 134
Compare yields, 138
Confirmation
forms of, 50
reversal and, 49
Conservatism, 44
Conservative applications, 158–159
Conservative assumptions, 137–138
Conservative guidelines, 24–25
Conservative investing, xii–xiii, 97, 122, 124, 151
assumptions, 1–3
Conservative option, ix–xiii, 1, 2, 5, 13, 24, 37–38, 60, 63, 72–75, 77, 79, 96–97, 107–110, 114, 115, 119–120, 143, 148, 151–162
appreciated value, 73–74
covered call, 79
downside protection, 74–75
fundamentals, 61–62
policy, establishing, 60–61
price volatility, 67
profits, 61, 63–64
profit-taking problem, 63
rescue strategy, 64–65
risk, 62–63
strategy, 27–29
taxes and profits, 65–67
time and extrinsic value
premium, 74
See also Combination
Conservative portfolio
management, 51
Conservative profile, 151–152
Conservative standards, 155–156
Consumer Price Index (CPI), 148
Contingent purchase risk, 100–101
Contingent purchase strategy, 96–97
application, 97–98
diversification, 99–101
long-call, 98–99
price decline, 109–112
ratio write, 107–109
rescue strategy, 106–109
short puts and, 103–104
Contingent sale, 95, 110–111, 133
Core earnings, 50, 167
Cost of trading, 21, 83
Covered call, 38, 69, 95
conservative strategy, 79
for contingent sale, 110–111
decision making, 70
exercise acceptance strategy, 79
exposure, 72
ground rules, 72–73
separation level, 77–79
stocks and, 71
tax ramifications, 75–76
writing, 1–2, 18, 34, 35, 38, 40–43, 69–73, 95, 106, 110–111, 118–120, 133, 147, 159, 167
Current market value, 15, 23, 107, 120, 125, 138, 167
Decision making, 63, 70, 113
Deep in/out condition, 167
Diagonal spread, 130
Discount, 79, 140, 167
Disposable income, 149
Diversification, 50, 51, 62, 96, 99–101, 104
Dividend collar, 89–90, 167
portfolio profits, 90–92
Dividend history, 156
Dividend yield, 5, 40–43, 139
Double-in-value definition, 156
Downside protection, 23, 31, 34, 63, 74–75, 168
Downside risk, 92, 124–125
Exercise, 18, 23, 33, 35, 42, 43, 45–46, 70, 72, 102, 111–112, 120, 140, 168
acceptance strategy, 79
avoidance, 77–78
Expiration, 5, 13–15, 19, 20, 41–44, 74, 83, 86, 101, 121, 129, 168
Expiration date, 20
Extrinsic value, 14–16, 72, 74, 75, 103
Family issues, 149
Flexibility, 36, 155
Forced exercise, 111–112
Forward roll, 102–106
Fundamental
change, 51
company, 50
criteria, 156–157
decisions on, 61–62
volatility, 123, 161, 168
Gaps, 54
Greed risk, 143–144
Hedge matrix, 83–86
Hedging stock risk, 89
Hedging the put, 89
Hedging the short call, 89
High-return strategy, 136–138
Horizontal spread, 130
Illiquidity risk, 147
Implied volatility, 15, 28, 32, 33, 115, 168
Income and assets, 149
Individual goals, 149
Inflation risk, 148
Information risk, 145
Internal Revenue Service (IRS), 135–136
In the money (ITM), 14–16, 22, 42, 45, 70, 76, 86, 91, 92, 102, 110, 111, 168
Intrinsic value, 13–16, 74, 102, 168
Iron butterfly, 81–84
hedge matrix and collateral requirements, 85–86
Knowledge and experience, 149
Large-point discounts, 140
Leverage, 17, 95–97, 111, 115, 121–122, 152, 168
Listed option, 15, 25–27, 95, 168
Lock-in price, 168
Long (buy options), 16–18
Long- and short-call strategy, 25–26
Long- and short-put strategy, 26–27
Long-call, 63–64, 101
Long-call contingent purchase strategy, 98–99
Long option, 133–134
Long position, 25, 45, 50, 84, 86, 98, 102, 168
Long put, 62–63
Long-term Equity Anticipation Securities (LEAPS), 4, 15, 25–27, 63, 95, 98, 99, 129, 168
Long-term goals, 44–45
Long-term option, 15, 25–26, 34
Loss
offsetting, 66–67
timing of, 66
Lost opportunity risk, 147–148
Margin, 145
Margin rules, 38–39
Market risk, 144
reducing, 154
unavailability, 147
Mitigate stock investment risk, 34–35
Model portfolio, 51–53
Momentum, 52, 55, 56
Money rules/moneyness, 14–15
Mutual fund, x, xi, 154
Naked position, 168
Nonconservative option, 134
Offsetting position, 135
1-2-3 iron butterfly, 82–84
Opening purchase transaction, 168
Opening sale transaction, 169
Opportunity risk, 35
Option, 13, 169
calculation of returns, 40–44
calls and call strategy, 18–23
conservative, 27–29
contract, 13–16 (See also Stock selection and option contract)
to determine value, 13–14
exercise, desirability, 45–46
extrinsic value, 14–15
goals, 44–45
intrinsic value, 14–15
LEAPS, 15, 25–27
long and short, 16–18
lost opportunity risk and, 35
margin rules, 38–39
puts and put strategy, 23–25
stock investment risk, 34–35
strategic timing and short-term price changes, 36–37
strike price, 15–16
technical analysis, 33–34
time advantage, 16
time value, 14–15
uncovered call, 37–38
volatility, 32–33
Option buyers, rules for, 75
Option opportunity, 2
Option sellers, rules for, 75–76
Options strategy, 113
carryover loss, 125–126
conservative vs. speculative, 115
downside risk, 124–125
fundamentals, 114–115
ground rules, 119–120
long put, 115–116
price fall, 117–118
price rise, 116–117
profit and loss, 126–127
rescue strategy, 120–123
risk profile, 123–124
short puts, 118–119
Options traders, 39
Option trading strategy, 163–165
Option volatility, 160–162
Out of the money (OTM), 14, 21–23, 41, 169
PE ratio trends, 156
Pitfalls, 152
Policy
establishing, 60–61
Portfolio, 3–11, 24–25, 36, 51–53
profits, dividend collar, 90–92
strategy, 73
Possibility, 72
Potential investments, 155
Premium, 11, 13–16, 20, 24, 32, 70–76, 95–99, 101, 118, 124, 137, 140, 145, 158, 169
Price decline, 109–112
Price volatility, 32–33, 61
Profit, 17
managing, 61
offsetting, 66–67
taxes and, 65–67
timing of, 66
without selling stock, 63–64
Profit-taking problem, 60, 63
Purchase price, 72
Put option, 15, 18, 20, 23–25, 62, 169
Quality investment, 157
Quality of earnings, 28–29
Ratio write, 37, 38, 107–109, 169
Relative Strength Index (RSI), 52, 55
Rescue strategy, 36, 64–65, 92, 106–113, 120–123, 169
Resistance and support tracking, 55
Return calculations, 40–44
Return if exercised, 40, 42, 169
Return if unchanged, 169
Revenue and earnings trends, 156
Reversal and confirmation, 49
Reversal indicators, 50–51
Risk, xi–xii, 28, 143
analysis, 135
brokerage, 146
collateral, 145
of exercise, 34–35
greed, 143–144
inflation and tax, 148
information, 145
lost opportunity, 147–148
market, 144
mitigate stock investment, 34–35
opportunity, 35
profile, 152–154
reality of, 62–63
short seller, 18
technical analysis, 33–34
tolerance, 149–150
trading, 145–146
unavailability, 147
volatility, 32–33
Risk standards vs. brand loyalty, 157–159
Roll down, 169
Roll forward, 78, 106, 108, 132, 133, 158, 169
Roll forward and up/down, 78–79, 104, 106, 108, 132, 133, 169
Rolling forward, 102–106
Roll up, 78, 170
Securities and Exchange Commission (SEC), 38
Seller positions, buyer vs., 18
Selling calls, 21–22, 32–33
Separation level, 77–79
Short (sell options), 16–18
Short call, 62–63, 139–140
Short-call offsets, 101
Shorter exposure, 105–106
Short option, 133–134
Short position, 16, 18, 37–38, 86, 102, 125, 131, 140, 170
Short puts, 64, 109
and contingent purchase, 103–104
Short seller risk, 18
Short sellers, time advantage, 16
Short straddle, 132–133
Short-term price change, 36–37
Short-term price movement, 35–36
Short-term price volatility, 61, 67
Simplicity, 134–135
Smart stock choices, 106–107
Southern Co. (SO), 54–55
Speculation, 59, 117, 121–122, 127, 152, 170
Spread strategy, 81, 129–131, 170
Spread techniques, 129–131
Spread terminology, 131
Stock
appreciated value, 73–74
conservative investing, 1–3
and covered call, 71
market option, 19
Stock purchase, 95
contingent purchase, 97–98
diversification, 99–101
forward roll, 102–106
leverage and options, 96–97
long-call, 101
long-call contingent purchase strategy, 98–99
price decline, 109–112
rescue strategy, 106–109
Stock selection and option
contract
conservative profile, 151–152
conservative standards, 155–156
fundamental criteria, 156–157
market risk, 154
pitfalls, 152
potential investments, 155
risk profile, 152–154
risk standards vs. brand loyalty, 157–159
tax guidelines, 159
volatility, 154–155, 160–162
Straddle strategy, 131–133, 136, 139, 154, 170
Strategic timing, 36–37
Strike price, 5, 13–16, 20–26, 34, 35, 38, 43, 44, 46, 78, 99–104, 119–121, 130–133, 138, 170, 1140
Support level, 63, 64, 119, 170
Systematic risk, 144
Tax
consequences, 67
guidelines, 159
problem, 135–136
and profits, 65–67
ramifications, 75–76
rate, 66
risk, 148
rules, 38, 67, 75, 77, 111, 127, 136, 159, 160
separation level, 77–79
Technical analysis, 33–34
Terms, 170
Theory vs. practice, 134
Time advantage, 16
Time value, 14–16, 25, 34, 43, 74, 84, 99, 103, 105, 111, 170
Total return, 73, 170
Trading cost, 21
Trading risk, 145–146
Trading strategy, 163–165
Unavailability risk, 147
Uncertainty, 36
Uncovered call, 37–38
Uncovered option, 118, 170
Underlying security, 29, 49
Underlying stock, 2, 20, 25, 26, 101, 102, 130–132, 138, 139, 170
Unqualified covered call, 136
Value, determination of, 13–14
Vertical spread, 130
Volatility, 2, 3, 15, 17, 28, 32–33, 35, 60–62, 67, 96, 115, 123, 154–155, 160–162, 170
Volume, 52
Volume spike, 54
Wal-Mart stock, 157
Worst-case analysis, 109
Writing puts, 135