December 10, 2014

Advisors Option 25: Mystery of the Covered Strangle

57 minutes

Options 101: Covered Strangles/Covered Combos

What is it? Long stock, covered call, short put. Why do it? To collect more income than a standard call or short put. Why not do it? Increased margin requirement, you will increase your stock position to the downside.

Note: Call and put should only be sold on strikes where you are comfortable buying/selling the stock.

Listener Mail Extravaganza

Question from Neil Berg - Love the show. You have discussed financial advisors using options for income generation and risk management on previous episodes. Is that the only acceptable use case for advisors and their clients? What about the speculative usage of options? Do you feel it is suitable for advisors to utilize options for that purpose? If so, which strategies would you recommend?

Question from Spartan16 - I have noticed that options tend to lose a substantial amount of value approaching long holiday weekends (Thanksgiving, Labor Day and others). Is this a known phenomenon in the markets, and is this something I can take advantage of as an income trader?

Question from Allen B, Baton Rouge, LA - First - love the network. You fill my commute with knowledge. Second - I have just discovered advisors option and have been listening to the archived episodes. In an earlier episode the RCM representative - sorry, I do not remember the name - mention a triple income strategy. I understand the two income components of selling the put and selling the call, but what is the third income component to this strategy? Thank you again for so much great free education.

Question from Michael Roberts - I came across your program while looking for new diversification options for my clients. I find your suggestions about collars and protective puts very interesting. I have also been reading new research about volatility itself being positioned as an alternative asset class. This leads me to two questions: 1. Do you agree that volatility is an asset class? 2. What is the best process to gain exposure to that asset class for my clients? Is simply buying an options with a substantial vega component sufficient, or must I purchase a dedicated volatility asset such as VIX options or an ETF life VXX?

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