The Striking Price column discusses a couple of fairly interesting option trades for the first quarter of 2014. The first involves having half your portfolio in cash and the other half in the SPDR S&P 500 ETF (SPY – 183.85). The option part of the strategy involves selling out of the money SPY calls on the half of the portfolio with equity market exposure and then selling out of the money put options against the other half of the portfolio that is in cash. Income is generated from selling the options, the upside performance is capped depending on the calls you choose to sell, and finally you have the obligation to buy the market lower with the short put positions.
The other strategy applies to those already invested in the market and suggests a downside hedge by purchasing out of the money SPY puts and selling farther out of the money SPY puts. The result here is a partial downside hedge and lowering the cost of the hedge through selling the farther out of the money puts.
Things Worth Reading –
There was no Options Action for this week as the guys get a holiday break. I decided to link to some articles I found worthwhile over the past couple of days –
Larry William’s Weekly Market Commentary on CBOE Options Hub
Doomsday Scenarios: It’s the Volatility of the VIX that is Our Signal: Not the VIX Itself
Ten Reasons I Sold My Stock Positions Friday
Weighing the Week Ahead: How Should Investors Judge The Prospects for 2014?