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Options Trading For The Conservative Investor: Increasing Profits Without Increasing Your Risk
Written for investors who are concerned with preserving capital, maximizing predictability, and maintaining consistently strong returns, this resource reveals a narrow band of options strategies that can help readers improve results as they systematically reduce unnecessary risk throughout their portfolio.
- GenresFinance
255 pages, Hardcover
First published May 13, 2005
6 people are currently reading
51 people want to read
About the author
Michael C. Thomsett
181 books13 followersMichael C. Thomsett is an expert in technical analysis and stock markets. He has published dozens of books on the topic as well as peer-reviewed papers, magazine articles, and blog entries. He has been writing professionally since 1978 and his best-selling, Getting Started in Options (John Wiley & Sons) is currently in its 10th edition (published by DeGruyter with a new title, “Options”) and has sold over 350,000 copies. The author lives near Nashville, Tennessee and he writes full time.
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Displaying 1 - 2 of 2 reviews
March 29, 2022
The first portion of this book was merely shallow. He starts off with a simple example of selling a call against owned Apple shares (apparently Apple is the in example these days). He picks a strike price 5 higher than what's currently trading. Why? No hint. Should you pick a different strike for a cheaper stock or a more volatile stock? Again, no hint. He doesn't even bother to mention the idea that the expected value of an option can be measured. Readers really need at least a basic summary of measures of options value if they're going to be seriously trading them.
He then goes on to briefly discuss naked puts -- all well and good (or at least as good as the discussion of covered calls), but again, there very little hint at any sort of analysis one might make. There are no diagrams of expected return at expiration that might provide understanding, and not even a hint at the fact that short puts and covered calls are equivalent positions. It's a lot easier to understand two trading strategies when you understand they have the same chances of making money.
The above make the book merely Not Helpful, but the chapter on combinations is just a muddled mess. He starts with a ratio call spread, but, since we're all about conservative investing here (a point he harps on incessantly), we buy stock to make sure there are no naked calls. What are we supposed to make of such a position? Is it even bullish or bearish? After pondering, I think it's a series of covered calls with a bear spread on the side, but it all depends on the ratios. It's not at all clear under what circumstances you'd even want to make such a trade, because there's little analysis of how the position would behave over time.
Next up is a long call plus a naked put. Ooh hoo, free stuff! Again, no diagrams, and no analysis that would lead to the obvious conclusion that the position is a synthetic stock position (or something similar -- he wasn't clear on the strike prices), and therefore has the same expectations as buying the stock outright. How do you benefit from a synthetic position? There's no hint, because he doesn't even acknowledge how the position functions.
Finally, his big money-making scheme. I think it's a short strangle with, of course, stock to make the calls covered, although he never uses the word "strangle". In fact, he never comes out and clearly states what the strategy actually is. I had to flip back and forth between different parts of the section several times before I could convince myself that's what he was describing.
Pause for a moment to think about what a strangle+stock position actually means (take your time, I'll still be here, grousing and sneering). Eventually, you realize the position consists of nothing put a naked put and covered call, with different strikes. Think how much easier it would be to simply say "two covered calls, one in and one out of the money"! But no, we never get there. Instead, we get some weird diagrams of his own devising that hint at where the profit and loss points are. Then, he compares to a short straddle+stock. Somehow, we're supposed to see that the strangle is better, but the straddle-based position (aka a pair of at-the-money covered calls) looked better from every angle to my eye.
On the other hand, a couple of things about the book netted it a second star -- he gives brief but serious attention to rescue strategies that provide food for though, at least, and he goes to the effort to explain the weird and wondrous rules regarding the (US) tax consequences when selling covered calls. The tax rules for option positions are another muddled mess, but that's Congress's fault.
So, no, conservative investor, don't read this book. Borrow a copy of Options as a Strategic Investment from the library, read the sections on covered calls and naked puts (a total of, what, 15 pages?) and then the chapter on the greeks, and you'll be far more informed than anyone who tries to get somewhere with Thomsett's book.
He then goes on to briefly discuss naked puts -- all well and good (or at least as good as the discussion of covered calls), but again, there very little hint at any sort of analysis one might make. There are no diagrams of expected return at expiration that might provide understanding, and not even a hint at the fact that short puts and covered calls are equivalent positions. It's a lot easier to understand two trading strategies when you understand they have the same chances of making money.
The above make the book merely Not Helpful, but the chapter on combinations is just a muddled mess. He starts with a ratio call spread, but, since we're all about conservative investing here (a point he harps on incessantly), we buy stock to make sure there are no naked calls. What are we supposed to make of such a position? Is it even bullish or bearish? After pondering, I think it's a series of covered calls with a bear spread on the side, but it all depends on the ratios. It's not at all clear under what circumstances you'd even want to make such a trade, because there's little analysis of how the position would behave over time.
Next up is a long call plus a naked put. Ooh hoo, free stuff! Again, no diagrams, and no analysis that would lead to the obvious conclusion that the position is a synthetic stock position (or something similar -- he wasn't clear on the strike prices), and therefore has the same expectations as buying the stock outright. How do you benefit from a synthetic position? There's no hint, because he doesn't even acknowledge how the position functions.
Finally, his big money-making scheme. I think it's a short strangle with, of course, stock to make the calls covered, although he never uses the word "strangle". In fact, he never comes out and clearly states what the strategy actually is. I had to flip back and forth between different parts of the section several times before I could convince myself that's what he was describing.
Pause for a moment to think about what a strangle+stock position actually means (take your time, I'll still be here, grousing and sneering). Eventually, you realize the position consists of nothing put a naked put and covered call, with different strikes. Think how much easier it would be to simply say "two covered calls, one in and one out of the money"! But no, we never get there. Instead, we get some weird diagrams of his own devising that hint at where the profit and loss points are. Then, he compares to a short straddle+stock. Somehow, we're supposed to see that the strangle is better, but the straddle-based position (aka a pair of at-the-money covered calls) looked better from every angle to my eye.
On the other hand, a couple of things about the book netted it a second star -- he gives brief but serious attention to rescue strategies that provide food for though, at least, and he goes to the effort to explain the weird and wondrous rules regarding the (US) tax consequences when selling covered calls. The tax rules for option positions are another muddled mess, but that's Congress's fault.
So, no, conservative investor, don't read this book. Borrow a copy of Options as a Strategic Investment from the library, read the sections on covered calls and naked puts (a total of, what, 15 pages?) and then the chapter on the greeks, and you'll be far more informed than anyone who tries to get somewhere with Thomsett's book.
May 16, 2016
Really a fantastic book with thorough examples. Just wish I had a $50,000-$100,000 portfolio to manage. This is how I would do it.
Displaying 1 - 2 of 2 reviews