Michael Thomsett

Michael Thomsett

Michael Thomsett is a prolific author and blogger. He has written 11 options books including the best-selling Getting Started in Options (Wiley, over 300,000 copies sold, 9th ed. released March 4, 2013). He also recently published Options Trading for the Institutional Investor (FT Press). Thomsett teaches at the New York Institute of Finance (NYIF) and for Moody’s Analytics. He lives in Nashville and writes and teaches fulltime.

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Strategy: 4 Ways To Pick Stocks For Covered Call Writing

You can earn consistent double-digit returns with covered calls (on an annualized basis). In fact, the shorter-term expirations yield more, so you’re better off writing several smaller premium calls per year than one or two big-dollar but lower-return strikes. A common error is picking stocks based on premium of the call. The more volatile the […]






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5 Key Points About Covered Call Writing

Covered calls are incredible cash cows. It is difficult to avoid double-digit returns if you focus on short-term contracts slightly out of the money. Writing several of these per year and waiting out expiration (or closing at a profit and replacing) is clearly one of the best conservative strategies. For anyone willing to accept the […]






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Strategy: 2 Ways To Manage Portfolio Risks With Options

In uncertain markets, every investor is fearful about possible losses in a stock portfolio. But other than getting out altogether, what can you do to eliminate that ever-present risk? Here are two options strategies worth considering for portfolio management: Collar for loss prevention. The collar is a smart move when you are holding appreciated stock. […]






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5 Ways To Compare Naked Puts And Covered Calls

Everyone has heard that writing naked or uncovered options is extremely high risk. This is not necessarily true. The covered call is risky because a stock’s value can fall below the net basis (cost of stock less premium received for the call). But when it comes to the naked put, it’s a different story. The […]






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Covered Calls – In Or Out Of The Money?

What strike proximity works best for covered call writing? The answer depends on several mitigating factors: What is your basis in the underlying? If your basis is far below the strike of the call, you have to determine whether you want (A) current income while keeping the stock, or (B) a sale of the stock. […]






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Strategy: 3 Key Points About Covered Calls

Many options traders view the covered call as a safe strategy. But are they right? The combination of premium income, dividend, and capital gains is quite appealing, without doubt. Selecting the right contract yields double-digit annualized returns. But there are risks. The covered call is not a risk-free strategy, so anyone going into one should […]






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3 Key Conservative Option Strategies

Can options work in a conservative way and actually help protect your portfolio? Most conservative investors traditionally have seen options as high-risk, speculative plays on short-term market swings. This is understandable when you think of the many high-risk option strategies available. But increasingly, options are going mainstream as even the most risk-averse investors are finding […]






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Options Strategy: The Iron Butterfly

The curiously-named “iron butterfly” is a complex strategy offering limited losses and limited profits. It is an expanded version of the basic butterfly (two separate spreads offsetting one another). The “iron” version is a combined straddle consisting of four options instead of the butterfly’s three. An iron butterfly can be either long or short. The […]






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Options: Delta Neutral Trades

A delta neutral trade is one in which a long and short option contain offsetting delta so that the net delta is at or near zero. Delta is a measurement of the degree in an option’s price movement when the underlying moves. The theme of delta neutrality can refer to many differently constructed strategies including […]






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Options Strategy: The Installment Collar

The collar can be expanded to create a truly creative variety. The traditional collar (own 100 shares, sell 1 covered call, and buy 1 put) can be turned into a long-term protective version: buy 100 shares sell one very short-term covered call, maximizing annualized income as the result of time decay, picking a strike higher […]






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Annualizing Covered Call Returns For Consistency

When writing covered calls, it’s important to accurately compare one expiration to another, to make certain that your analysis is accurate based on both rate and time. You can compare annualized returns under the following guidelines: Make all yield comparisons to the strike. Use the strike for consistency, based on the rationale that if exercised, […]






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Options Strategy: Swing Trading With Variable Weighting

Using options to focus more on either uptrend or downtrend is an effective method for augmenting the swing itself. The strategy assumes that you have an opinion about the prevailing direction of movement in the underlying, and that momentum confirms your opinion. So as a starting point, you can coordinate a weighting decision by checking […]






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Trading Close to Expiration – a Strategy with Advantages

Everyone familiar with options trading is aware of the big dilemma: Options close to expiration cost less but expire soon. Options with more time to develop profitably cost more. How do you balance these conflicting attributes? Trading options very close to expiration and containing little or no time value might be the most powerful form […]






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How to Improve Your Odds with Put Ratio Backspreads

Traders tend to view the Put Ratio Backspread as a bear strategy, because it employs puts. However, it is actually a volatility strategy. So entering the position when implied volatility is high and waiting for the inevitable adjustment is a smart approach, regardless of the direction of price movement. Based on volatility and time decay, […]