The last paragraph of the article sums it up pretty well: "All in all, there are easier and less complex ways of making more money with less effort." OK, so let's say you had a large amount of money (e.g. $500,000) and you wanted to generate about 1-2% per month for income, and also preserve your capital. What are the best strategies? Just buy good stocks and do collars? If the market starts trending down is that such a good idea? The indices have been in a trading range for quite a while. They seem to have bounced off the high end and maybe be heading down to the lower end (or not). Any input is welcome.
If you think the market is going down, buy put options. If on the otherhand, you think the market is going up, buy call options.
Eliot although I'm a new comer to this forum I have to say your question is THE question we all have.... (at least those of us who have money to preserve ) For several years I was reasonably successful with just a covered call strategy then last year after the very ugly 1st quarter and I found our portfolio down 10% for the YTD I began to research and study my a$$ off to fully understand and implement other option strategies. There is no one answer to your question because the market changes. The bottom line is to LEARN as many strategies as you can...master a few of them and then intuitively know when to implement them. By that I mean you will know what strategies work best in high vol environments and those that work best in low vol environments. Currently I'm trying to add to my arsenal some basic TA knowledge which combined with understanding of Greeks I can then PERHAPS have a bit of an edge. The gratification I have thus far received is inspite of last weeks hugh down move our portfolio is UP 10% for the year instead of flat as it might have been had I not pursued the knowledge of options trading. All I can say is hang in there and don't be put off learning....asking...exploring all the options out there. GL Ardvark oh yes and if you do have a fairly large sum and want to protect your nest egg...don't use all of it for your options trading account..the % you want to risk is of course dependent on your risk tolerance and confidence in how well you manage risk but in general they say 1-2% per play.
VEry hard to hedge with DIA put when he shorts a put on just 1 stock of the DJIA. Had he short 1 put of every dow 30, and long DIA put, then, it could be done. Not only that, DIA put could be more expensive, which would give him a net debit. DIA is 111. How many Dow 30 is over 100 in price? Zero. He could make a net profit if DIA goes in the direction of the put. But this is the same as any directional bets. I tend to hate selling naked options because it ties up so much capital. Also, I believe that a stock usually goes up very slowly and plummets very fast. So, in my opinion selling naked calls is better than naked puts. Besides, these bluechips dow 30 already hit the maturity stages of growth. It's unlikely that its price will increase drastically over a short time frame.
No, not a single stock. I'm talking about shorting put options on maybe 20 DJIA stocks, the ones with the fattest premiums. There would be a high, but not 100% correlation with the DIA. The majority would only need to stay about level. But like the article that segv posted, there are easier ways of making more money.