Making Money with Option Strategies: Powerful Hedging Ideas for the Serious Investor to Reduce Portfolio Risks
Paperback: 203 pages
Publisher: The Career Press, Inc. (2016)
The About the Author at Amazon notes that author Michael C. Thomsett is a full-time writer, teacher, and speaker. His options courses have been sponsored by Moody’s Analytics as well as online on many educational sites, including the Global Risk Community. He has published dozens of books and written hundreds of articles about options, stock investing, candlestick charting, and technical analysis. Thomsett is also a frequent contributor to Better Investing and AAII Journal.
Most investors are probably not familiar, or are only somewhat familiar, with options. I fall into that latter group; which is one of the reasons I was excited to have a chance to review this book. Perhaps the best way to start this review is with a definition to kind of set the stage.
Investopedia describes options as a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
Thomsett makes a key point in the relatively brief Introduction when he notes, “A lot of focus in the market is non short-term trading opportunities, and these exist without a doubt. However, the more permanent value options trading is not in short-term profit potential, button how options can reduce risk in your portfolio.” Clearly, savvy investors have an interest in risk reduction. The Introduction gives way to 15 chapters and a glossary, which is likely to be helpful to those not familiar with the world of options.
The Basics of Options
This first chapter adds meat to the bones of the Investopedia definition. It describes features such as the attributes of an option contract, the benefits – and risks – of leverage, terms related to options, and calculation of option return. Just so I was clear before I proceeded, I read the first chapter twice.
A nice feature of not only this chapter, but the entire book, is the ‘Key Points’ highlighted on nearly every page and the liberal use of tables and charts. Most readers will find the visual accompaniments to the text helpful.
The middle chapters of the book walk readers through the different actions and strategies associated with options … and their are plenty! While I did not go back and read an entire chapter – like the first – I did find myself reading various passages multiple times. While the book is not necessarily long, it will require you full attention as you peruse its pages.
Tax Rules and Proximity
Chapters on tax rules for option trading and the importance of proximity conclude the book. With respect to taxes, Thomsett informs the reader that the many tax rules make options more complex than most forms of investing. While he shares some basic options-based rules, he suggests readers refer to a free booklet by the Chicago Board Options Exchange (CBOE), Taxes and Investing, and make use of your tax advisor.
Proximity refers to the hedge and its relationship to two important lines, resistance and support. Thomsett strives to help the reader understand proximity and how to answer the two most important questions, when and where the trade should be entered. This is one of those chapters that may require a second reading.
Who is the audience for this book? Those who simply want to have a more detailed understanding of how options work; and investors looking for a vehicle to make profits not only when the stock market goes up, but when the market goes down or even sideways.
The paperback version of Making Money with Option Strategies: Powerful Hedging Ideas for the Serious Investor to Reduce Portfolio Risks is available at Amazon for $20.95.