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Options Education

Options: The Calendar Call Spread

The calendar call spread is an options play that allows you to profit -- even if a stock goes nowhere. Read Article

Options: The Short Bear Ratio Spread

If you think your stock will tank, protect yourself with this complex option strategy. Here's an example using the upcoming Green Mountain earnings. Read Article

Options: The Diagonal Call Spread

The diagonal call spread takes some patience, but it offers decent rewards for very little risk. Get familiar with the options strategy with this Priceline trade idea. Read Article

Options: Iron Condors vs. Covered Calls

Covered calls theoretically are the riskier of the two strategies, but they're still a better option in certain situations. Read Article

Mini-Options Change the Game for Small Investors

This powerful tool gives the average investor the ability to deploy lucrative options strategies with minimal capital outlay. Read Article

Don’t Rely on Screeners for Covered Calls

Set your parameters wisely. But in all cases, you must be careful which stocks to use covered calls on. Don't get tempted by large, risky premiums. Read Article

Options: Gamma Risk Visualized

Gamma grows as expiration approaches, so exiting a bit early may appeal to those with a lower risk appetite. Read Article

5 Rules for Selling Options for Profits

Generating income from options strategies takes time and knowledge, and here are five plus-one rules to help you find your way through. Read Article

Options Trading and the “Sell in May” Phenomenon

Whether or not you believe in "Sell in May and Go Away," there are options strategies to take note of during the summer doldrums. Read Article

3 Keys to Understanding Gamma

Our review of the Greeks comes to a conclusion with gamma. Read Article

What Happens in Vega…

Vega measures how much an options position will shift with each move in implied volatility, helping traders avoid being blindsided. Read Article

Covered Call Advice From a Pro

An expert's look at covered call trading, including strategies, inherent difficulties and some of the best stocks to trade. Read Article

The Theta Thief Feasts on Option Value

Theta becomes more bold as expiration approaches, benefiting the options seller and robbing the options buyer. Read Article

May the (Trading) Odds Be Ever In Your Favor

For premium sellers, one simple equation can help you predict your profit potential. Read Article

Conquering the Notoriously Difficult Straddle Play

Straddles don't win if the stock moves higher or lower - they profit if the stock moves higher or lower than anticipated. Read Article

Trading Covered Calls in Your IRA

Covered calls: a neutral-to-bullish options strategy for all levels of investors. Read Article

Stocks Climbing Through the Wall of Worry?

Does investor pessimism amid a strong uptrend mean the bullish ride should continue? Read Article

Is Light-Volume Trading a Good Thing?

Month-over-month options volume indicates traders are becoming more engaged. Read Article

Options Made Simple: Selling Covered Calls

How to trade a conservative hedge on an existing stock holding. Read Article

Portfolio Protection Step 5: Put Options

In my recent article 5 Steps to Protect Your Portfolio, the final step I discussed was utilizing put options as insurance that any unrealized gains you have don’t turn into losses. Most investors have heard of options but often think they are just for rich folks or hedge-fund managers, who employ them for speculative purposes. Certainly, sophisticated investors regularly use them as leverage to maximize their portfolio gains. But they also like to use options such as puts to nail down their gains and to mitigate losses should their stocks’ prices head in the wrong direction. In essence, put options provide protection by betting that the underlying stock will decline. They give you the right (not the obligation) to sell the stock at a certain price at a specific future time. There are three scenarios in which a put can help you protect your portfolio:

Protect Unrealized Profits

Let’s pretend you own 100 shares of Intel (NASDAQ:INTC), which closed yesterday at $26.71. The stock has had a nice run this year, up from its 52-week low of $19.16. If you had bought those shares at the low, you would be sitting on a gain of about 39% today -- not too shabby for a very volatile market! And while you might think the shares have more momentum in the short term (like I do), so you don’t want to sell them right now, you also know any whiff of trouble from Europe or other bad economic news could send the market -- and Intel’s fortunes -- downhill. That’s when buying a protective put can help mitigate your potential loss. First, you buy one put option from your broker, which gives you the right to sell 100 shares of INTC. If you are very risk-averse and decide you want to protect your current gain, you can buy a put option that allows you to sell INTC at a price of $26 through July 20, 2012. (Note: There are many options available, depending on your time frame. Read more about Intel's options here.) As of Jan. 24, this particular put will cost you about $202, plus commission. If the price of INTC continues climbing, you will be out the $202 you paid for the option, but you will reap the benefit of the price increase in your INTC shares. But if the price of INTC stock declines under $26, you can still sell it at that price, through July 20. Bottom line: You have locked in your gain! Read Article