Download PDF Option Writing Strategies for Extraordinary Returns
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Option Writing Strategies for Extraordinary Returns
Download PDF Option Writing Strategies for Extraordinary Returns
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Review
"Clear, concise, and easy to read...an excellent job of making strategies involving short options accessible to everyone." -- James B. Bittman, Senior Instructor, CBOE Options Institute, and author of Options for the Stock Investor"Superbly written...irresistibly clever ways to cope with the marketÂ’s stubborn refusal to publish an itinerary of the future." -- Don Worden, Worden Brothers, Inc., publishers of TeleChart, www.worden.com"These savvy investors likely outperform 98% of all investors over the years." -- Yale Hirsch, Founder, The Stock TraderÂ’s Almanac"This book presents sophisticated investment strategies in simple and clear language, enabling investors to improve their returns and reduce risks." -- Pedro Belli, Economist, formerly with the World Bank"This method works exceptionally well no matter which way the market swings...an excellent way to establish an investment portfolio." -- Brooks Harrison, Former Chief Technical Analyst, John Magee, Inc.
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From the Back Cover
Straightforward stock market strategies that offer exceptional returns and cash flow while substantially reducing market risk With only minimal extra effort each month, you can do better--a lot better--than buy-and-hold. To earn solid returns while effectively managing risk, millions of investors in whipsaw financial markets have learned that basic option writing strategies can make a dramatic improvement in their investment returns. Option Writing Strategies for Extraordinary Returns details put and call writing techniques that investors from conservative to aggressive are using to both generate and protect portfolio profits in bull, bear, and non-trending markets. Whether your goal is to create better-than-average long-term growth or generate better-than-average current income, this timely book provides step-by-step directions you can follow to create a stock option strategy that allows you to: Combine the purchase of blue chip stock with the writing of puts and calls on that stock Increase your long position in the future, if the put is exercised, at a fixed price that is guaranteed to be lower than the current price Generate significant interest on cash received when you write options It’s not as complex as it sounds; it is, however, proven effective at reducing the risk of owning common stocks. Option Writing Strategies for Extraordinary Returns will change the way you look at stock ownership and option writing by combining the two into an effective, all-weather investing program. For too long, individual investors have been inundated with stories on the perils of option buying. Brokers and money managers who passed along these scare stories could hardly be blamed, since more often than not they had never taken the time to understand the profitable merits of writing options. Option Writing Strategies for Extraordinary Returns explains, in everyday language and without complex mathematics, how you can use option writing strategies to improve your investment returns while shielding your portfolio from unexpected loss. It explodes the prevailing myth that writing options exposes an investor to unpredictable and unlimited risk by detailing how, when used correctly, option writing is in fact among the most easy-to-use methodologies for shielding your portfolio from such risk. Using tables and charts to illustrate each step, veteran options expert David Funk details an innovative “three-legged†model that involves the purchase of a stock position and the simultaneous writing of both put and call options with different strike prices on that position. This model reduces the amount of downside risk assumed versus buying stock alone, while allowing you the flexibility to increase your upside potential when you feel circumstances warrant. This well-organized guidebook takes you through an innovative program designed to turn basic put and call option writing into powerful income and capital building tools: Section 1 covers the basic concepts of covered call and cash-collateralized put writing Section 2 explains how to design an investment program focused on capital appreciation Section 3 shows how to adjust that program to maximize current income Section 4 explores advanced strategies for extending positions, profiting from unusual events, and more Section 5 shows you how to prepare for, and even profit from, early assignments and other unexpected occurrences Section 6 takes a more in-depth look at the underlying theory of option writing Option Writing Strategies for Extraordinary Returns isn’t a get-rich-quick book that promises to double your money each year. What David Funk’s book does promise is to introduce you to a commonsense, market-proven investing strategy for making more money than the majority of investors, while providing your portfolio with specific loss limits when the market drops. "These savvy investors likely outperform 98% of all investors over the years."-Yale Hirsch, Founder, The Stock Trader's Almanac "Superbly written...irresistibly clever ways to cope with the market's stubborn refusal to publish an itinerary of the future."-Don Worden, Worden Brothers, Inc., publishers of TeleChart, www.worden.com "Clear, concise, and easy to read...an excellent job of making strategies involving short options accessible to everyone."-James B. Bittman, Senior Instructor, CBOE Options Institute, and author of Options for the Stock Investor "This method works exceptionally well no matter which way the market swings...an excellent way to establish an investment portfolio."-Brooks Harrison, Former Chief Technical Analyst, John Magee, Inc. "This book presents sophisticated investment strategies in simple and clear language, enabling investors to improve their returns and reduce risks."-Pedro Belli, Economist, formerly with the World Bank
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Product details
Hardcover: 256 pages
Publisher: McGraw-Hill Education; 1 edition (May 5, 2005)
Language: English
ISBN-10: 0071448837
ISBN-13: 978-0071448833
Product Dimensions:
6.4 x 0.8 x 9.4 inches
Shipping Weight: 1.3 pounds (View shipping rates and policies)
Average Customer Review:
3.1 out of 5 stars
10 customer reviews
Amazon Best Sellers Rank:
#1,034,344 in Books (See Top 100 in Books)
Once the method becomes clear your brain starts to boggle. Why have I been working for so long when methods such as this are available?David produces proof via his trading account statement that these methods can return much greater returns than any term deposit account, to my mind triple of what's currently available (2014 ). And even in a flat market, No, especially in a flat market.What's more extraordinary is the risks can be about the same as a term deposit account if a little thought is applied.I have seen Seminars advertised, to teach would be traders these methods, for hundreds of dollars.I have read this book twice already and am planning on a third reading shortly.Thouroughly recommended for any would be Capitalist.I feel I need to pay for this book twice for the three legged position. ( hint, nothing to do with sex )
I am an option trader with 3 years of trading experience, and I am thoroughly alarmed after reading this book.Here are my criticisms:1. Lack of ClarityTwo problems here: name, and explanation of the strategy. Mr Funk insists to call his recommended strategy "the three-legged position". OK, everyone is entitled to create their own pet names, but it would have been useful to tell the reader what the rest of the market calls this strategy - it is "Covered Strangle Writing" or "Covered Short Strangle".More serious than Mr Funk's refusal to come clean about the name of his recommended strategy, is his failure to explain the WHYs of this strategy. Now the common use of Covered Short Strangle is to generate income, and this is discussed at some length in the book. However, there is no discussion about the relative merits of this strategy compared to other income-generating option strategies, such as Covered Call.More dishearteningly, Mr Funk creates a twist in the standard Covered Short Strangle to devise a capital-appreciation strategy. Would a traditionally income-generating strategy be effective as a capital-appreciation strategy ? How does it compare to other capital-appreciation option strategies ? No discussion. Why does he recommend the sale of deep-in-the-money put options ? No explanation.In short, we get good clear details of the mechanics of his recommended strategy, but zero explanation as to WHY he recommends each part of this strategy.2. Fuzzy discussion of RISKSNo where in this book can we find a risk chart that shows clearly at what price ranges will this strategy make or lose money, and by how much. You need to read the book very carefully to deduce (yes, deduce - because Mr Funk does not spell it out clearly) that it will make money when the stock price moves strongly upwards.Furthermore, Mr Funk only glancingly discuss risk management. What to do if the stock price moves down instead .. ? Well, don't forget to set your stop-loss at 20%. That is it. There isn't even any explanation whether the stop loss should be applied to all three positions (the stock, the short put and the short call options), or just the stock.So, the blurb in the front cover "Benefit from both up and down markets" is misleading. This strategy will hurt on the way down, and for the capital-appreciation variation (with deep in the money short put) it will hurt when the stock price is moving sideway too!!3. Zero discussion on the strategy's disadvantagesReading through this book, you will think that this strategy has no weakness at all. Let's refer to what other leading option experts have to say about it:"Very high risk and capped reward. Not recommended." (Guy Cohen, "The Bible of Options Strategies", 2005, p. 305) He goes on to say that while this strategy generates better yield compared to Covered Call, it is also substantially riskier, "the position can become loss-making at approximately double the speed as a simple Covered Call position" (p. 52)."So a covered strangle - which is a covered write and a naked put - is equivalent to selling two naked puts. Therefore, it would be more efficient to just sell two naked puts rather than bother with the covered strangle write." (Lawrence G. McMillan, "McMillan on Options", 2004, pp 76-77) He goes on to say that simply selling two naked puts will bring lower collateral requirements, lower commision costs and avoid having to deal with three bid-asked spreads.Every option strategy has a weakness; so this book's silence on this very important subject makes it a serious DANGER to your financial health.
This book suggests what the author calls a "three-legged" approach; buying the stock, writing a covered call, and writing a cash collateralized put, where the options written are LEAPS. There are several problems in how he presents this idea:He doesn't show the payoff charts which are normally used to show potential returns as a function of price at expiration. Instead, for the few cases where he calculates the possible return, he calculates it assuming a zero price change, which corresponds to a single point on a payoff chart.He doesn't explain why he thinks this "three-legged" approach is better than just a covered call. In fact if the payoff charts are plotted for some of his examples (p. 120, GM), it is clear that a covered call would have given better returns than his approach regardless of the price at expiration.He repeatedly states that the "three-legged" approach "benifits, within a range, from stock price movements in either direction". This implies that returns increase as long as the stock price changes from where you bought it, which is not true. Again, showing the payoff charts would have made this clear.This book is not a good use of your time or money. If you'd like an introduction to writing options, I'd suggest Wolfinger's "The Short Book on Options". If you are interested in a more aggressive strategy, I'd suggest Lehman and McMillan's "New Insights on Covered Call Writing".
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