Jul 31, 2013
Advisors Option: The Wheel of Fun
Options 101: Alternate methods for entering and exiting stock positions using options - aka "The Wheel of Fun."
- Caveat 1: Short puts are excellent tools for income generation, but most advisors and clients should limit themselves to only writing puts at prices, and on underlyings, that they don't mind owning.
- Caveat 2: The income generation portion of these trades are extremely volatility-dependent. This strategy is not suitable for all trading/volatility environments. Don't force an income trade when the volatility is too low. You're simply incurring risk without enough reward to offset it.
Listener Mail: Help us help you.
- Question from Walter T., Tampa, FL - Why are retirement accounts restricted to only buying options and writing covered positions?
- Question from NorthForkSpur - What do the hosts think of advisors using futures options for exposure to non-correlated assets like commodities? Is this the right path? Should most stick with ETF options instead?
- Question from Alejandro Vega, CFP, Los Angeles, CA - I enjoyed your episode on collars. They can certainly provide great benefit to my clients. But I'm confused as to the difference between a collar and a risk reversal. They seem to be the same trade. Are these just two different terms for the same thing?
The Buzz: S&P 500 “Persistence Scorecard" result are out - Most managers still fail to beat the market. Two great reasons to add options to you client portfolios. Correlation is kicking into high gear.