By selling premium, this strategy takes advantage of time decay – the decline in an option's value over time – which accelerates as an option approaches expiration. The most important thing I learned is that accepting losses quickly is the first key to success.” In addition, Loeb says, “The difference between the investor who achieves a net profit for himself year after year and the one who is usually in the red isn't entirely a matter of superior stock selection or superior timing. The Expectational Analysis® trading approach that underpins the recommendations in each issue of the Option Advisor has demonstrated positive expectation.
In addition, we use short-term positions to take maximum advantage of time erosion: the decline in an option's value over time, which increases as an option approaches expiration.
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One of the primary technical tools we use is based on the concept of relative strength. One of the great advantages of the trend-initiating relative strength approach is its all-inclusiveness. Sentiment analysis - the study of the beliefs, expectations and convictions of the market - is often the.
For example, a large increase in out-of-the-money calls (speculation for a large advance) indicates that equity expectations are high. Similarly, a large increase in no-money-down stakes. speculation about a big fall) indicate speculators' skepticism. Target profits and option prices may vary depending on the magnitude of the expected short-term move.
In general, a mix of in-the-money, moderately out-of-the-money, and moderately in-the-money options is recommended for purchase in an Aggressive portfolio. These recommendations are selected based on our analysis of a stock's longer-term bullish or bearish potential. We have now presented all the ingredients needed to successfully trade short and long options in the Options Advisor.
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Put sales utilize the concept of time decay - the premium an option sells for declines as the option nears expiration. The Option AdvisorPut Selling Portfolio displays up to three of the most attractive selling options in each issue. Most brokerage firms require you to retain a margin amount equal to the greater of (1) 20 percent of the underlying stock price plus the option premium received minus the amount the option is out of the money, or (2) 10 percent of the underlying stock price plus the option premium.
There are several differences in the meaning and function of the Option Re-Cap section for the Put Selling portfolio. The end date of the put sale (column 9) is the expiration date of the sold option. And again, we emphasize that equal dollar amounts should be applied to each of the put sales whenever possible.
The strangle holder profits when the share price exceeds the strike prices of the purchased options by more than the total premium paid. One component of the SIR mission statement is education—another valuable benefit of Option Advisor. From month to month, you will find some of the following important information in "On-the-Money:".
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To see how your option is doing and to check out other MSFT options, log into SchaeffersResearch.com and click on the "StreeToolsTM" tab at the top of the home page. To narrow or broaden your options search, use the drop-down boxes at the top of the montage page that search by expiration month, amount in or out of the money, etc. The Last Sale indicates the trading price of the option in most. recent transaction.
The last sale exchange indicates the option exchange on which the last sale was traded. The sign indicates whether the last sale price was higher or lower than the previous sale price. Net change and percent change show how much, in absolute terms and in percentage terms, the last sale changed from the previous day's closing price.
Last Sell Size gives the number of contracts (remember that one contract usually represents 100 shares of the underlying stock) that were involved in the last trade. Volume is the number of contracts that have been traded so far in the current day. Our analysts use many available tools in their trade recommendations every day, especially sentiment-based indicators such as put/call ratios and open interest rates.
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For your protection and with prior notice to all of our current subscribers, we may change our unlisted hotline number to eliminate and prevent unauthorized use. We also reserve the right to immediately cancel all services and recover damages from anyone who discovers the phone number of the unlisted hotline. Just click on the "My Schaeffer's" tab at the top of our home page, enter your password, and you'll have instant access to the current case and hotline, plus an archive of previous cases and hotlines.
As an added bonus for our online subscribers, we now offer access to our exclusive online Sentiment Trading Tools and other market data to stay on top of every recommendation. If you would like to change your subscription to have online access, please call our customer service department toll-free. The 2003 option expiration calendar, found on the next page, includes all the important dates for the option trader, including option advisor publication and telephone hotline dates.
For your convenience, we have pre-calculated the appropriate target starting points for a wide range of purchase prices and target profits. Once you know your purchase price for a position, the target starting point can be determined simply by looking under the appropriate target profit column. The target profit for each position appears in each issue of Option Advisor and is indicated in the recommendation hotline available on the Thursday before publication.
TARGET EXIT POINT TABLE
TARGET EXIT POINT TABLE (continued)
THE OPTION ADVISOR RECOMMENDATION FORM
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Just click on the "My Schaeffer's" tab at the top of the SchaeffersResearch.com home page, enter your username and password, then click on Portfolio Tracker...and you're in. As an Option Advisor subscriber, you automatically become part of the Membership Advantage Program, which gives you new opportunities to save money on quality products from Schaeffer's and our program partners. Schaeffer's Investment Research: 15 percent off the standard retail price of any book, bulletin or real-time alert service, including renewals.
Investor's Business Daily: 10 percent off a new one- or two-year subscription to Investor's Business Daily.
GLOSSARY OF IMPORTANT OPTIONS TRADING TERMS
An option spread that consists of buying one option and simultaneously selling a different option at the same value with a closer expiration date. CLOSING PRICE The price of a stock (or option) at the last transaction of the day. A call is in the money when the market price of the underlying stock is greater than the exercise price of the option.
The put value is in the money when the market price of the underlying stock is lower than the exercise price of the option. NEUTRAL SPREAD An option spread created to profit from a narrow movement of the underlying stock in both. SECURITY PRICE The price of a share (or option) at the first transaction of the day.
A call is out of the money when the exercise price is higher than the market price of the underlying stock. A put is out of the money when the exercise price is lower than the market price of the underlying stock. ROLLOUT Replaces an option of the same class and strike price, but with a later expiration.
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ANY AND ALL MATERIAL PROVIDED BY SIR IS PROVIDED "AS IS" AND SIR MAKES NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. It is the subscriber's sole responsibility to notify the broker immediately of any and all changes to his account, including but not limited to: adding new services, changing any/all address information, transferring service from one publication to another, cancellation of the service, or expiration of the service. SIR is not affiliated with any brokerage firm and does not endorse or recommend any particular brokerage firm.
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