Vloptbook - The Value Line Guide to Option Strategies Page 1 THE VALUE LINE Guide to Option Strategies How to Invest Using Options(Updated If you

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The Value Line Guide to Option Strategies - Page 1 T HE V ALUE L INE Guide to Option Strategies How to Invest Using Options (Updated September 29, 2006 ) If you need assistance with our service, feel free to contact us. ¾ Technical Support can be reached at 800-654-0508 or [email protected] ¾ Value Line Options Analysts can be reached at 212-907-1597 or [email protected] ¾ For inquiries concerning your account status, call Client Relations at 800-634-3583 or [email protected] . Value Line Publishing, Inc. 220 East 42 nd Street, New York, NY 10017-5891 www.valueline.com
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The Value Line Guide to Option Strategies - Page 2 TABLE OF CONTENTS List of Tables. ..................................................................................................................................... 4 List of Graphs. .................................................................................................................................... 4 Preface - Options & the Value Line Daily Options Survey. ............................................................. 5 Introduction - The Chapters Ahead . ................................................................................................. 6 Chapter 1 – Option Basics. ................................................................................................................ 7 Defining Some Terms. ................................................................................................................................. 7 Some Sample Premiums. ............................................................................................................................ 7 Buying a Call . .............................................................................................................................................. 8 Buying a Put . ............................................................................................................................................... 8 Selling before expiration. ............................................................................................................................ 9 Writing Uncovered or “Naked” Options . ............................................................................................... 10 Writing Covered Calls. ............................................................................................................................. 10 Which strategy is best?. ............................................................................................................................ 11 Additional Information. ............................................................................................................................ 11 Chapter 2 – Finding the Most Attractive Options. .......................................................................... 12 Value Line’s Common and Option Ranks. ............................................................................................. 12 How We Rank Options. ............................................................................................................................ 12 Using our Selected Options . ..................................................................................................................... 13 Finding Options by Stock Ticker. ............................................................................................................ 14 Using our Option Screener. ...................................................................................................................... 15 Getting Started. ......................................................................................................................................... 16 Chapter 3 – Spotlight on Buying Calls. ........................................................................................... 17 Paying Premium. ....................................................................................................................................... 17 An In-the-Money “Deductible”. ............................................................................................................... 17 At-the-Money: Insurance in Both Directions . ........................................................................................ 18 Out-of-the-Money: Insurance Against Not Buying the Stock. .............................................................. 18 Your Best Call? . ........................................................................................................................................ 19 Chapter 4 – Spotlight in Buying ‘Naked” Puts. .............................................................................. 20 Varying Bearish Positions . ....................................................................................................................... 20 Our Put Buying Picks . .............................................................................................................................. 21 Adding Puts to Your Portfolio. ................................................................................................................ 22 Chapter 5 - Spotlight on Uncovered or “Naked” Option Writing. ................................................. 23
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The Value Line Guide to Option Strategies - Page 3 Why Write? . .............................................................................................................................................. 23 Capital Requirements. .............................................................................................................................. 24 Seeking Writing Opportunities. ............................................................................................................... 24 Chapter 6 - Spotlight on Covered Call Writing. .............................................................................. 25 Our Covered Call Ranks. ......................................................................................................................... 25 The Performance of our Rank 1 Covered Calls. .................................................................................... 25 Our Selected Options for Covered Call Writing. ................................................................................... 26 Further Screening . .................................................................................................................................... 27 Chapter 7 – How Much Should I Invest in Options. ...................................................................... 28 Define Objectives. ...................................................................................................................................... 28 Using Relative Volatility. .......................................................................................................................... 28 Using Diversification. ................................................................................................................................ 29 How Much for Call and Put Buying. ....................................................................................................... 29 How Much for “Naked” Call and Put Writes . ....................................................................................... 29 How Much for Covered Calls. .................................................................................................................. 30 How Much for Market-Neutral Hedges. ................................................................................................. 30 Testing Different Strategy Mixes. ............................................................................................................ 30 Chapter 8 – When to Close Out an Option Position. ...................................................................... 31 Follow the Ranks. ...................................................................................................................................... 31 Other Considerations. ............................................................................................................................... 31 Chapter 9 - Managing a Covered Call Portfolio. ............................................................................ 33 Why a Covered Call?. ............................................................................................................................... 33 Looking at Your Portfolio. ....................................................................................................................... 33 Chapter 10 – Option Trading Tips . ................................................................................................. 36 Always Diversify. ....................................................................................................................................... 36 Capital Considerations . ............................................................................................................................ 36 Trading. ...................................................................................................................................................... 38 Chapter 11 - Managing a Long/Short Hedge. ................................................................................ 39 Why the long/short hedge works. ............................................................................................................ 39 Which Hedge is Best? . .............................................................................................................................. 39 Setting Up Your Hedge. ............................................................................................................................ 39 All Four Hedges Combined. ..................................................................................................................... 40 Maintaining the Hedge . ............................................................................................................................ 40 Chapter 12 - A Review of Our Performance Data. ......................................................................... 42
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The Value Line Guide to Option Strategies - Page 4 How We Rank Options. ............................................................................................................................ 42 Calculating Weekly Rank Performance. ................................................................................................. 42 Calculating Cumulative Performance in Ranksfile.Xls. ........................................................................ 43 Our Quarterly Track Record File – Trakrec.Xls. ..................................................................................
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This note was uploaded on 05/10/2008 for the course FIN 367 taught by Professor Han during the Spring '08 term at University of Texas at Austin.

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Vloptbook - The Value Line Guide to Option Strategies Page 1 THE VALUE LINE Guide to Option Strategies How to Invest Using Options(Updated If you

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