Risk Management for Investors Who Never Used Options

Today's video is directed to individual investors who have not yet begun to use options.

If you are concerned about future bear markets and are mainly interested in preserving your assets, it's important for you to recognize that you an achieve that goal by adopting conservative option strategies.



Get a free e-book. It's a sampler version of The Rookies Guide to Options.

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2 Responses to Risk Management for Investors Who Never Used Options

  1. Clem 08/17/2009 at 8:45 AM #

    Hello Mark,
    Thank you for creating your blog. I’ve been reading your blog daily for the past few months. I’m working my way through my unread posts. It is an excellent source of information. I am going to purchase your book.

    Would you please explain why there are sometimes “special” options? For example, one group of the BAC January 15 puts are selling at around $12, but the other group of Jan 15 puts are selling at $2.4. What are the differences?

    Thanks!

  2. Mark Wolfinger 08/17/2009 at 9:08 AM #

    Clem,
    There are ‘non-standard’ options because of a special corporate action.
    For example, a merger, a spin-off, a stock split that is not either 2 for 1 or 4 for 1, all create a new set of options. Why?
    The ‘regular’ call option can be exercised to get 100 shares of stock (by paying the strike price per share).
    Let’s say there is a merger and the holder of 100 shares of the company that is taken over is entitled to 67 shares of the surviving company, plus 52 cents per share, plus $18 worth of a convertible preferred stock (or any combination of ‘stuff).
    All all options must honor that takeover. thus, the call exerciser is entitled to buy (and the put exerciser is entitled to sell) exactly that combination: shares, cash, preferred stock.
    Once the merger is complete, no one wants to trade those options anymore, so new options are issued. These are once gain regular, or 100 shares of the surviving company (BAC).
    I assume (you can search the option symbol and the CBOE is certain to have specifics if you really need them) that these are old options resulting from BAC acquisition of MER or Countrywide.
    The very short reply: The ‘deliverable’ is different.