Advisors Option: Spreads

Options 101: Spreads. What is a spread? Vertical spreads? How do you add spreads to your portfolio? How do spreads affected by the Greeks?

Mail Bag: Our hosts answer listener questions.

Question from Tony - Glendale, AZ: Thank you for this insightful program! I typed the terms financial planner and options into the iTunes search bar on a whim and was amazed to find the Advisors Option. You have been a godsend for professionals like me who want to learn more about these products for our clients. I feel much better prepared to deal with their questions now thanks to your program. Thanks again.

Question from Spencer - Portland, OR: I mostly deal with retired clients whose assets are tied up in IRAs. I was under the impression that options were prohibited in IRAs. Is that the case? Perhaps you can do a program on options for retirees, or people with assets in retirement accounts. Thanks for your one-of-a-kind program Mark!

Question from Alexander S - Portland, ME: I've heard the Advisors Option team, in particular Randy Swan, discussing options overlays in the past. Can you explain exactly what you mean by that term? Do you modify the underlying portfolio to conform to the specifications of the options allocation, or are the options a truly separate component? Also, I listened to a recording of a buy-side panel from the OIC/FIA conference in September. One of the fund managers on that panel said he prefers to liquidate his positions, rather than purchase protective puts. Why do you think so many advisors/assets managers are still so ignorant of the benefits options offer a portfolio manager?

Question from James C: I have a 401K that is invested in the S&P. What's the best way to hedge it outside of the 401K from downside risk? Would beta weighting with SDS be a good hedge or is there a better way? Also, I heard the terms "hitting offers" and "lifting bids," I hope I got that right. What does that mean?

Question from Orlando T: Mark you're program is uniquely situated to address a serious problem in the advisor community - the lack of any real understanding of hedging and risk management using options. I think everyone on your program will agree options are the best tools for this, yet advisors don't have any substantive training on this subject. Why is that? Why don't the CFA/CFP exams offer more in the way of options instruction? Why doesn't the OIC partner with these organizations, or create their own certification exam? It seems to be the only organization that has a shot at solving this problem, otherwise we're all poised to recreate 2008/2009 the next time the market crashes.