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Secrets to Explosive Stock Market Profits: Section 1

In section 1, I introduce the book, provide some basic thoughts on the usefulness and importance of options, and give an overview of spread trading.

NOTE FROM GREG – This book has been replaced by Sage’s new book which can be viewed on-ling HERE.

As always, comments are very welcome, and appreciated.


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  1. Just read the first part of the book and thought I would make a quick comment: I think it would be great to always give the other side of the story, so that people see the disadvantages of each strategy. Apparently you are trying to do it with your advantages/disadvantages recaps, but would great to explain them as well.
    For example, in the MSFT example, it would be good to say that there is a case where it is more benefitial to own the stock than the options: if stock goes to $27 for example, where the loss would be more important. In general , would be good to say that the leverage you get with profits works against you with losses (no free lunch).
    Also, in the section about spread, you could say that profits are limited.

    just my $0.02

    In part 2 of the book, in the “short put” section, you could mention that brokerages usually let you use this strategy with less requirement that the “short call” because in this situation risk is limited (as stocks can only go to zero).
    As you mentioned the brokerages requirements in this part of the book (in the “short call”), maybe you should also mention that it affects your marging buying power. Maybe this is even worth a chapter in the book: how margin is affected by all different strategies.

    In part 3 of the book, when you make the analogy with buying insurance for the house, you are asking if we would buy insurance and answer “of course”. I would say it depends on the price of the insurance (premium, like an option), risk factor, potential of appreciation/profit for the house, market conditions etc…Maybe I am splitting hairs here, but it is not always such an easy decision to make. If it was, all stock owners would sell covered calls.

    Chapter 5 is a great chapter. I especially like the “when should I use a protective stop” part.
    In the spirit of what I have said before, in the example, when you calculate the profit if the stock goes to $15, you could say that if you had not bought the puts the profit would have been $1,500 VS $1,050. I know I am focusing on these issues, but I always like to see both sides of the coin before I make a decision. And the loss of potential profit can make or break a trade.
    Also, small detail but in “Maximum risk” I think you mean “OR $450 for 3 contracts” instead of “OF”.

    #

    Ok, after chapter 6, I think you are missing something about the difference between writing covered calls and buying a protective put. In most cases, if an investor does not intend to sell his stock (because of fundies, taxes etc…), he should NOT write covered calls. I am sure you know the reasons, but I think it should be explained.
    Personnaly I don’t like writing covered calls.
    Writng calls against a stock that you are not willing to sell is like selling naked calls. If price goes above the strike, you find yourself in the exact same situation, and it’s not a good one. If you sell covered calls against a stock that you like, a long-term holding with a good cost basis, what are you hoping for? Certainly that the options will expire worthless and that you won’t be called away. Same situation as if you were a naked writer.
    And if the stock rises, of course you can roll the calls, with further-out and higher strikes calls, and keep getting money/credit. But eventually you will have to either sell some stock or pay a substantial debit to buy back the calls. And you end-up fighting the market.
    I don’t know how deep you want to get in this book about all these strategies, but I believe this is a very important issue with covered calls.
    Also, maybe, mentioning the potential risk of the covered writer (lose money if stock drops by more than the call premium) could be a good introduction to the collar chapter, as buying a put in this situation would establish a protective collar.
    #


  2. Fantastic feedback optrader – this will be really helpful to us as we try to put a final draft together! All suggestions welcome :-)


  3. All links to this education training book appear to be broken.


  4. There is something weird going on with the the above link from Greg.  You end up at a website with an expired certificate.  I ordered the book and it was not delivered.  The phone number on the credit card transaction was disconnected.  I had to call the bank and open a dispute for a refund.