Although the options strategies presented in a previous article are very attractive, where you hold the investment is as important as the investment itself, the idea being to obtain the best after-tax return. Please note that the comments made in this article reflect the tax reality at the time of publication. This options-focused article, the last installment of a four-part series, delves into strategies for optimizing return on investment when factoring in tax implications. In brief, Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) offer superior flexibility ..read more

In this third article of a four-part series, we explore the concept of option hedging using the ‘Greeks’, which are five variables in option pricing represented by letters of the Greek alphabet. The variables are: Delta: Measures the change in an option’s price for each $1 change in the price of the underlying stock. Gamma: Measures the change in delta for each $1 change in the price of the underlying stock. Theta: Measures the change in an option’s price for a change in its time to maturity. Vega: Measures the change in an option’s price concerning a change in implied volatility in the marke ..read more

In the second article of our four-part series, we explore the concept of volatility and learn how to both protect against volatility and how to use it to your advantage.  Why measure volatility? In most cases, volatility is a key metric used to gauge the risk associated with a security. In essence, the more volatile a security, the riskier it can be perceived. In the financial world, greater risk is typically met with investors’ higher compensation expectations for their capital. Several methods exist to measure the past, present, and future volatility of your portfolio. Let’s explore a f ..read more

Welcome to the first article in a series of four, where we’ll lay the foundations for using options as part of your portfolio management. To gain a comprehensive understanding of options and how they function, I recommend exploring the following articles: Beginner’s Guide to Options Trading Trading Your First Option Let’s Do Some Exercise: Exercising Your Options You can also find a wealth of information on options trading in the Learning section of Disnat, the Desjardins Online Brokerage site. Now that you have grasped the basics of options and learned how to trade them, you might wonder why ..read more

I had the privilege of attending the Canadian Annual Derivative Conference in Montréal recently.  Although it’s an event I’ve been attending for at least 20 years, this was the first time my perspective was that of a former options market maker rather than an active one.  As usual, I learned about unfamiliar aspects of the market from a wide range of speakers (and of course, enjoyed the cocktail party), The important thing to keep in mind is the concept of “fair value.”  When a market maker posts a two-sided market, you can assume that his fair value is the midpoint of those quo ..read more

The short straddle has a bad rap given it is a strategy with unlimited risk on both sides of the strategy. If you sell a short straddle on a stock, ETF or index and the underlying moves substantially higher or lower, you can see substantial losses. However, it is a strategy that is commonly misunderstood, and in this post we will explore how to utilize it in a portfolio. It should be noted that short straddles are not suitable for all options traders. It requires both a relatively large trading account and a high tolerance for risk, given the sizable drawdowns that can occur. However, the trad ..read more

In case you missed them, dive into our most-read Option articles in 2022. You can also explore our top 5 Option articles from 2021.   1) The Secret to Managing Losses and Hitting Home Runs I have worked as a market strategist for the past 15 years alongside a few thousand retail and institutional investors in foreign currency, futures, equities and options. A common experience amongst self-directed investors is a repetitive string of small winners, followed by a few big losses that wipe out weeks or months of…       2) Why options should be considered for investing in Bit ..read more

Liquidity is a very important factor when trading options as it determines how easy it is to be filled at a competitive price when entering the trade, as well as how easy it is to exit the trade. Volume and open interest tend to be the first things retail traders look at when considering liquidity, but these do not give the full picture as to how liquid a product can actually be. Another misconception retail traders make is that market makers are trading “against them” when taking the other side of the trade. This is not true, and understanding the role and viewpoint of market makers can provi ..read more

Savvy investors are always scanning the market to find opportunities that can be exploited for profit. One such strategy consists of taking advantage of unusual options activity. Learn the ins and outs of unusual options activity in an article sponsored by National Bank Direct Brokerage. The post Should you take advantage of unusual options activity? appeared first on Option Matters ..read more

Covered call options refers to holding a stock as part of your portfolio while simultaneously selling a call option on the same stock. Owning the stock outright is quite simple but deciding which option chain to sell can be a challenge. There is no one-size-fits all approach to selling call options. Some of the variables to consider include: 1) a strike price that best aligns with your view of the underlying stock, 2) what price are you willing to sell your stock position, 3) what option expiration date to use as annualized gains are the highest when selecting call options that expire the e ..read more