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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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 options contain offsetting delta so that the net delta is at 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 spreads (covered […]






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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, […]






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Black-Scholes – a Critical Examination and Suggestions for Alternative Methods

The big question, of course, is: How can we rely on a formula with a series of variables that are provably inaccurate and based on a flawed assumptions, exponentially inaccurate variables, and outdated models about the nature of options? The pricing model under the Black-Scholes (B-S) formula is premised on several assumptions. Today, in spite […]






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When Volatility Becomes Unreliable – then What?

Truth be told, volatility analysis is a great idea, but only until the last month before expiration. In that last month, volatility simply doesn’t work reliably enough to be used. Why? Because extrinsic value (IV) is not logical and most or all of time value has evaporated. What can you do at this point? These […]






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New Options Educational Site Launched

(Editors note: we are happy to pass along info about Michael Thomsett’s new blog site. He is a well known option expert and a friend of the CBOE. Good luck Michael). After years of writing books, articles, blogs, and opinion pieces within the options market, I recently teamed up with a partner, Michael Stoppa, an […]






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Pitfalls (and Possible Solution) of the Ratio Write

The attraction of the ratio write is the potential for higher premium income. Traders too often convince themselves that exercise is unlikely, and that time decay is “likely” to outpace intrinsic value as the stock goes higher, even if the calls go in the money. Here’s the thinking: You own shares of an underlying security. […]