By Michael C. Thomsett
Read or Download Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (Financial Times Prentice Hall Books) PDF
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Extra resources for Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk (Financial Times Prentice Hall Books)
For example, following a large price decline in the market in a short time span, prices of strong stocks may rebound; but not being sure where the market bottom is, investors tend to be the most fearful when the greatest opportunities are present. In these cases, buying calls allows you to control shares of stock, limit potential losses, and expose yourself to impressive gains—as long as prices rebound in a timely manner. This may be a speculative move, but even the most conservative investor may see market declines as buying opportunities, especially if a small amount of capital is at risk.
3. The risk range is minimal. When you consider the spread between the put’s strike price and your estimated support price for the stock, minus the put premium, how many points remain? This is the most reliable method for judging whether or not to sell puts. 4. Ultimately, you would like to acquire shares of the stock. Whenever you sell puts, you should also be willing to acquire shares. If you really don’t want to own the stock, then you should not sell puts. As a conservative standard, you should be willing to acquire shares of that specific stock at the put’s strike price.
Even so, few investors can ignore dramatic price movement in their portfolio. When prices plummet or soar—especially as part of a marketwide trend and not for any fundamental reasons—the change in price levels may be only temporary. The tendency for some investors is to panic and sell at the low or to buy at a price peak. ” It helps to ignore short-term trends and to resist the human tendencies toward panic or greed; and conservative investors are more likely to equip themselves with a cooler head during volatile times.