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Options Strategy

Understanding the benefits and risks of options.

What is An Option?

An option is a contract to buy or sell a specific financial product officially known as the option’s underlying instrument or underlying interest. For equity options, the underlying instrument is a stock, exchange-traded fund (ETF), or similar product. The contract itself is very precise. It establishes a specific price, called the strike price, at which the contract may be exercised, or acted on. And it has an expiration date. When an option expires, it no longer has value and no longer exists

Did You Know?

The Chicago Board of Trade established the first exchange to trade options in 1973? They called it The Chicago Board Options Exchange. Its still open today and is better known as the CBOE (pronounced Sea-Bow).

Exploring Options Strategies

Covered Calls: One of the most common mistakes in investing is that investors buy high-cost, gimmicky investments. We prefer low-cost index investing. An investor with a substantial portfolio can generate extra income from a diversified portfolio by selling short-term out-of-the-money calls from time to time. This can help offset the cost of having an advisor or even generate cash flow that can be used during retirement instead of just selling shares of investments.

Cash Secured Puts: Sometimes an investor comes into a large amount of cash and rather than just investing all at once, cash secured puts can be used to get an investor into the market on its dips, and generate short-term cash flow while you waiting for market downturns.

Long Calls/Bull Call Spread: Buying calls or call spreads are extremely aggressive strategies and not for most investors, but for those with an appetite for this level of risk allows for leverage.

Collar: Sometimes investors find themselves in a concentrated position in one stock because they earned stock and or stock options over a long career at one company. Other investors find themselves in a windfall situation when their small company finally IPO. We have a lot of experience hedging those concentrated positions. Selling calls generates income that can be used to buy puts (a downside protection strategy) through what can be an extremely profitable or stressful time for this type of investor.

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