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moneyness of options impacting option prices

Moneyness of Options: Why Call and Put Premiums for the Same Stock, Strike and Expiration can be so Different/ CONTEST DEADLINE IS NOVEMBER 30th

Option trading basics teaches us that the concept of put-call parity means that for every call option price, the corresponding put option (same stock, strike and expiration) will have an implied value. For example, if Company BCI is trading at $50.00 per share, if the $50 call option generated $1.50, the put option would also be [...]

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Option expirations and theta

Mechanics of LEAPS

LEAPS are long-term options that have expiration dates between nine months and two and a half years out. The term is an acronym for Long Term Equity AnticiPation Securities. Once the expiration date is less than nine months away, LEAPS convert to conventional options. Some covered call writers will buy LEAPS in lieu of stocks [...]

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Ask Alan

Ask Alan 116 “Is Covered Call Writing a Zero Sum Game?”

Alan answers a question posed by Todd, who asks: “Is it true that options is a zero sum game? If so, if covered call writers are more likely to make money in the long run, who are buying these options and taking predominantly losing positions?” ——— It’s the 2nd Wednesday of the month. Time for [...]

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volatility and covered call writing

A Review of Volatility and its Impact on Option-Selling

When we write covered calls or cash-secured puts, we are selling volatility. The time value component of a short-term option premium reflects the amount of time until expiration plus the volatility of the underlying security. Since most of us are comparing options with similar expirations, the volatility of the stock or exchange-traded fund represents the [...]

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volatility and option-selling

Using Volatility to Predict Future Stock Prices

Volatility is a key consideration for both stock selection and option-selling decisions. Despite its relevance to our covered call writing and put-selling selections, volatility does have its limitations and we must fully understand how we can best take advantage of the information gleaned from volatility statistics.   Types of volatility Historical volatility: The annualized standard [...]

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contract adjustments and option-selling

Mergers and Acquisitions: Part II- Stock and Cash Mergers

In Part I of this series, we discussed mergers involving cash settlement only. These events do impact our covered call and put-selling positions.  In this article we will highlight mergers that involve both cash and stock and demonstrate how these corporate events can alter our option contract positions.   Assumptions Company XYZ is merging into [...]

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Ask Alan

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contract adjustments and covered call writing

Mergers and Acquisitions: Part I- All Cash Mergers

Contract adjustments will change our covered call writing and put-selling positions. In the past, I have written about the effect stock splits and dividends have on our positions. In this article, I will highlight another cause of these adjustments, mergers and acquisitions (M&A). This is a corporate event where two companies are joined into one [...]

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percentage of options that expire worthless

Myths and Misconceptions about Covered Call Writing

There are certain fallacies and deceptions associated with covered call writing as there are with all investment strategies. I am the first to say that there is no one strategy right for every single investor. We must master the pros and cons of each strategy to determine if it is right for our families. This [...]

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Factors that impact option pricing

Calculating the Greeks Using an Options Calculator

The Greeks are a mathematical means of estimating the risk of stock options. Delta measures the change in the option price due to a change in the stock price, Gamma measures the change in the option delta due to a change in the stock price, Theta measures the change in the option price due to [...]

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