Options Installment Strategies Long-Term Spreads for Profiting from Time Decay

An “installment strategy” in its most basic form, combines two options, one long-term position and one short-term. This strategy is designed as a conservative, no-cost method to either eliminate risk for future trading when stock is owned; or to fix the price for a future purchase of the underlying security.

Portfolio managers and experienced individual traders face a chronic problem – risk versus time. This goes beyond the well-known time decay of options and expands to the ever-present market risk to an underlying security. How do you execute a successful, conservative strategy and eliminate or reduce market risk?

In this book, a range of effective and creative strategies set out a conservative hedging system.  This involves the combination of long-term long positions offset by short-term short positions in various configurations. Options Installment Strategies presents variations on the well-known calendar spread and demonstrates how specific strategies work well in short-term swings and even during extended periods of consolidation.

Table of Contents

 

Preface – Why a Contingent Method?

List of Figures and Tables

Chapter 1 – Chart-Based Trade Timing

            The Key to Profitable Trades

            Advantageous Price Levels

            Price Patterns

            Candlesticks (Eastern)

            Western Price Indicators

Non-price signals

            Strong Fundamental Trends

Chapter 2 – Proximity and Risk

            Proximity and Moneyness

            Proximity to Expiration

            Proximity of Price to Resistance or Support

            Strongest Reversal Proximity

            Proximity in Consolidation Trends

            Risks in Every Strategy

            Collateral Requirements

            Options and Market Risk

Chapter 3 – Picking the Right Stock

            Fundamental Risk

            The Effect of Fundamental Trends on Options Risk

            Contingent Purchase and Stock Selection

            Contingent Sales as Risk Hedges of Stock

            Dividend Yield and Trends

Debt to Total Capitalization Ratio and Trend

            P/E Annual Ranges

            Revenue and Earnings Trends

Chapter 4 – Timing with Well-Selected Technical Signals

            Entry and Exit Timing

            Resistance and Support

Bollinger Bands

T-Line

Gaps and Tops or Bottoms

Rounded Tops or Bottoms and Island Reversals

            Candlestick Reversal

            Candlestick Continuation

            Volume Indicators

            Momentum Oscillators

            Moving Averages

Chapter 5 – Long-Term Market Risk Elimination

            The Nature of Underlying Risk

            The Risk Hedge with Long Puts

            The Trade: Long-Term Long Put and Short-Term Short Positions

            Calculating the Point of Risk Elimination

            Possible Outcomes

Chapter 6 – Long-Term Contingent Purchase

            Locking in the Future Price

            The Risk Hedge for Future Purchase

            Calculating the Point of Risk Elimination

            Possible Outcomes

Chapter 7 – Short Options and Levels of Risk

            Unavoidable Risks

            Covered Calls for Risk Reduction

            Uncovered Puts for the Same Risk Profile

            Uncovered Calls and Varying Risk Levels

            Picking Calls or Puts Based on Price Proximity

            Exploiting Time Decay

Chapter 8 – Alternative Offsets Beyond Short Calls or Short Puts

            Synthetic Stock

            Vertical and Diagonal Spreads

            Straddles and Strangles

            Iron butterfly

            Closing the Long-Term Option at a Profit

Chapter 9 – Combining the Short Offset Alternatives

            Current price proximity

Historical Volatility

Combining the Alternatives

Multiple Increments and Combinations

Chapter 10 – Expanding the Strategies

            Rolling techniques

            Long Collars

            Long-Term Long Straddles and Strangles

            Short-Term Short Straddles, Strangles and Spreads

            Covered straddle and strangles

Straps and Strips

            Multiple Option Contracts

Chapter 11 – Managing Potential Losses

            Short Positions at Risk

            The Advantage of Time Decay

            Reducing Risk Exposure: Moneyness and Timing

            Avoiding Ex-Dividend Periods

            Avoiding Earnings Week

            Short-Term Expiration Advantages

Chapter 12 – Recovery Strategies

            Protective and Responsive Loss Offsets

            Selective Rolling

            Closing and Taking Losses

            Entering New Positions with Higher Risks

            Expanding Exposed Spread Positions

Chapter 13 – The Flexibi