Options for Volatile Markets
Managing Volatility and Protecting Against Catastrophic Risk
2nd Edition
Published on 15. July 2011
210 pages
978-1-118-10264-0 (ISBN)
Description
Practical option strategies for the new post-crisis financialmarket
Traditional buy-and-hold investing has been seriously challengedin the wake of the recent financial crisis. With economic andmarket uncertainty at a very high level, options are still the mosteffective tool available for managing volatility and downside risk,yet they remain widely underutilized by individuals and investmentmanagers. In Options for Volatile Markets, Richard Lehmanand Lawrence McMillan provide you with specific strategies to lowerportfolio volatility, bulletproof your portfolio against anycatastrophe, and tailor your investments to the precise level ofrisk you are comfortable with.
While the core strategy of this new edition remains covered callwriting, the authors expand into more comprehensive optionstrategies that offer deeper downside protection or even allowinvestors to capitalize on market or individual stock volatility.In addition, they discuss new offerings like weekly expirations andoptions on ETFs. For investors who are looking to capitalize onglobal investment opportunities but are fearful of lurking "blackswans", this book shows how ETFs and options can be utilized toconstruct portfolios that are continuously protected againstunforeseen calamities.
* A complete guide to the increased control and lowered riskcovered call writing offers active investors and traders
* Addresses the changing investment environment and how to useoptions to succeed within it
* Explains how to use options with exchange-traded funds
Understanding options is now more important than ever, and withOptions for Volatile Markets as your guide, you'll quicklylearn how to use them to protect your portfolio as well as improveits overall performance.
Traditional buy-and-hold investing has been seriously challengedin the wake of the recent financial crisis. With economic andmarket uncertainty at a very high level, options are still the mosteffective tool available for managing volatility and downside risk,yet they remain widely underutilized by individuals and investmentmanagers. In Options for Volatile Markets, Richard Lehmanand Lawrence McMillan provide you with specific strategies to lowerportfolio volatility, bulletproof your portfolio against anycatastrophe, and tailor your investments to the precise level ofrisk you are comfortable with.
While the core strategy of this new edition remains covered callwriting, the authors expand into more comprehensive optionstrategies that offer deeper downside protection or even allowinvestors to capitalize on market or individual stock volatility.In addition, they discuss new offerings like weekly expirations andoptions on ETFs. For investors who are looking to capitalize onglobal investment opportunities but are fearful of lurking "blackswans", this book shows how ETFs and options can be utilized toconstruct portfolios that are continuously protected againstunforeseen calamities.
* A complete guide to the increased control and lowered riskcovered call writing offers active investors and traders
* Addresses the changing investment environment and how to useoptions to succeed within it
* Explains how to use options with exchange-traded funds
Understanding options is now more important than ever, and withOptions for Volatile Markets as your guide, you'll quicklylearn how to use them to protect your portfolio as well as improveits overall performance.
More details
Other editions
Additional editions
R. Lehman
Options for Volatile Markets 2e: Managing Volatility and Protecting against Catastrophic Risk
Software
09/2012
Wiley
€78.52
Shipment within 15-20 days
Richard Lehman | Lawrence G. McMillan
Options in Volatile Markets
Managing Volatility and Protecting Against Catastrophic Risk
Book
09/2011
2nd Edition
Bloomberg Press
€56.00
Shipment within 15-20 days
Persons
RICHARD LEHMAN is the founderof RHL Capital, a registeredinvestment advisor, and a part-time instructor of behavioralfinance and options at UC Berkeley Extension. He is also the authorof Far From Random, and publishes an investment newsletter calledthe Channelist. Lehman's financial career spans more than thirtyyears in product management, marketing, sales, and investmentmanagement beginning with an eleven-year stint on Wall Street withE.F. Hutton & Co., Thomson McKinnon Inc., and the New YorkStock Exchange.
LAWRENCE G. McMILLAN is the founder and President ofMcMillan Analysis Corporation. He authors the Daily Volume Alerts,a unique daily service that selects short-term stock trades bylooking for unusual increases in equity option volume. McMillanmanages option-oriented accounts for individual investors and alsopublishes the Option Strategist, a derivative products newslettercovering equity, index, and futures options. McMillan's web site,www.optionstrategist.com, twice received a "Best of the Web" awardfrom Forbes magazine. He is the coauthor, with RichardLehman, of the first edition of this book and the author ofMcMillan on Options (Wiley) and Options as a StrategicInvestment.
LAWRENCE G. McMILLAN is the founder and President ofMcMillan Analysis Corporation. He authors the Daily Volume Alerts,a unique daily service that selects short-term stock trades bylooking for unusual increases in equity option volume. McMillanmanages option-oriented accounts for individual investors and alsopublishes the Option Strategist, a derivative products newslettercovering equity, index, and futures options. McMillan's web site,www.optionstrategist.com, twice received a "Best of the Web" awardfrom Forbes magazine. He is the coauthor, with RichardLehman, of the first edition of this book and the author ofMcMillan on Options (Wiley) and Options as a StrategicInvestment.
Content
Preface xi
INTRODUCTION
The "New Normal" in Equity Investing 1
CHAPTER 1
Option Basics 7
What Are Options? 7
Exercise and Assignment 14
Positions 17
How Options Are Traded 19
Options in Your Account 22
CHAPTER 2
Option Pricing and Valuation 25
Option Premium 25
Theoretical Value 27
Time Value 28
Volatility 31
Interest Rates 32
Dividends 32
Calls versus Puts 33
Option Skews and Anomalies 34
CHAPTER 3
The Basics of Covered Call Writing 37
Requirements for "Valid" Covered Writes 38
Risk/Reward of a Covered Write 39
Calculating Potential Returns 46
Major Factors Affecting Call-Writing Returns 48
Covered Writing as an Ongoing Strategy 54
Summing Up Covered Writing 57
CHAPTER 4
Implementing Covered Call Writing 59
Follow-Up Actions 59
Behavioral Issues 69
Differing Approaches 70
Selecting Calls to Write 77
Risks 80
Basic Tax Rules for Options 81
Summing Up Implementation 84
CHAPTER 5
Advanced Call-Writing Techniques 87
Writing Calls on "Hot" Stocks 88
Tax Deferral Strategies 89
Covered Writing on Margin 90
Covered Writing against Securities Other Than Stock 93
Partial Writing, Mixed Writing, and Ratio Writing 98
Put Writing 103
Expiration Games 106
Option-Stock Arbitrage 108
CHAPTER 6
Basic Put Hedging 111
Put Hedge Basics 111
Advantages 115
Disadvantages 116
Behavioral Implications 123
Put Hedge versus Covered Call 127
Hedging against Catastrophic Risk 129
CHAPTER 7
Advanced Hedging Strategies 131
Put Hedge Follow-Ups 131
Using Put Spreads to Hedge 137
Collars 145
Conclusions on Protective Option Strategies 151
CHAPTER 8
Options on ETFs 153
ETFs in a Nutshell 154
ETF Options 158
Covered Call Writing on ETFs 159
Our Put Hedge and Collar Study on SPY 162
Appendix: Partial List of ETFs with Listed Options 165
CHAPTER 9
Volatility and Volatility Derivatives 171
What Is Volatility? 171
Using VIX as a Market Indicator 173
Volatility Futures 179
Variance Futures 181
The Behavior of VIX Futures 183
VIX Options 191
VIX Option Strategies 199
The Future 204
Acknowledgments 205
About the Authors 206
Index 207
INTRODUCTION
The "New Normal" in Equity Investing 1
CHAPTER 1
Option Basics 7
What Are Options? 7
Exercise and Assignment 14
Positions 17
How Options Are Traded 19
Options in Your Account 22
CHAPTER 2
Option Pricing and Valuation 25
Option Premium 25
Theoretical Value 27
Time Value 28
Volatility 31
Interest Rates 32
Dividends 32
Calls versus Puts 33
Option Skews and Anomalies 34
CHAPTER 3
The Basics of Covered Call Writing 37
Requirements for "Valid" Covered Writes 38
Risk/Reward of a Covered Write 39
Calculating Potential Returns 46
Major Factors Affecting Call-Writing Returns 48
Covered Writing as an Ongoing Strategy 54
Summing Up Covered Writing 57
CHAPTER 4
Implementing Covered Call Writing 59
Follow-Up Actions 59
Behavioral Issues 69
Differing Approaches 70
Selecting Calls to Write 77
Risks 80
Basic Tax Rules for Options 81
Summing Up Implementation 84
CHAPTER 5
Advanced Call-Writing Techniques 87
Writing Calls on "Hot" Stocks 88
Tax Deferral Strategies 89
Covered Writing on Margin 90
Covered Writing against Securities Other Than Stock 93
Partial Writing, Mixed Writing, and Ratio Writing 98
Put Writing 103
Expiration Games 106
Option-Stock Arbitrage 108
CHAPTER 6
Basic Put Hedging 111
Put Hedge Basics 111
Advantages 115
Disadvantages 116
Behavioral Implications 123
Put Hedge versus Covered Call 127
Hedging against Catastrophic Risk 129
CHAPTER 7
Advanced Hedging Strategies 131
Put Hedge Follow-Ups 131
Using Put Spreads to Hedge 137
Collars 145
Conclusions on Protective Option Strategies 151
CHAPTER 8
Options on ETFs 153
ETFs in a Nutshell 154
ETF Options 158
Covered Call Writing on ETFs 159
Our Put Hedge and Collar Study on SPY 162
Appendix: Partial List of ETFs with Listed Options 165
CHAPTER 9
Volatility and Volatility Derivatives 171
What Is Volatility? 171
Using VIX as a Market Indicator 173
Volatility Futures 179
Variance Futures 181
The Behavior of VIX Futures 183
VIX Options 191
VIX Option Strategies 199
The Future 204
Acknowledgments 205
About the Authors 206
Index 207
