c12 JWBT016-Busby September 30, 2008 14:21 Printer: TBD
Options Strategies to Make Money 131is best to sell put options 30 to 45 days out from expiration and hold them
until expiration in order to keep the premium. This decreases the probabil-
ity of the underlying security getting to the strike price.Options Strategies
Options are a low cost way to hedge your stock portfolio. The usual way
that this is done is by buying puts on an index or exchange-traded fund
(ETF). There are many ETFs, and a little research should allow you to
identify one that will serve your purpose. Since most stocks move with
the indexes, you can buy put options to offset your portfolio and gain some
protection from a bearish downturn in the market. Following are some of
the ETFs that you might want to consider:SPY S&P 500
DIA Dow 30
QQQQ Nasdaq 100
XLU Utility
XLE Energy
GLD Gold
SLV SilverThe strategy is not difficult if you understand some basic information.
If your stock portfolio is worth $50,000 in the current market and the mar-
ket is weak, you may want to do some hedging. You may not want to liqui-
date your positions but do not want to be left helpless if a major downturn
happens. You can use ETFs like the Diamond, which is a Dow 30 fund
and short the fund to offset losses in your equity account. By hedging your
stock positions, even though you may be losing money with equities, you
can devise a strategy to offset all or part of those losses with options. In
other words, the stock portion of the portfolio may go down in value but
the options valuation may increase so that the overall portfolio valuation is
maintained. That is the goal of this strategy.PROBINGProbing is another way to benefit from options. If you have analyzed the
market and believe that prices are moving up or down, you can use options
to let your analysis work for you. For example, if you believe that a stock is
going to move up in price, you do not need to purchase the stock, just buy