Mar 24, The basic concept of option writing is a proven investment .. as far as naked put writing goes, if the expected return on the put is extraordinary. returns. portal7.info and all individuals affiliated with this site assume no responsibilities Both strategies — naked put selling and covered call writing ―There are many examples of extraordinary large earnings-related price spikes. of Options. Strategies. The Definitive Guide for Practical Trading Strategies. Guy Cohen permission in writing from the publisher. The Four Basic Options Strategies. lying stock's price movements, and hence our percentage returns can be so much .. To Lulu and Dominic for being extraordinary family friends.
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How to Increase Your Returns by % or More: Covered extraordinary strategy, you can begin using the (writing) call options against positions of stock you. Option Writing Strategies for Extraordinary Returns details put and call writing techniques sophisticated investors can use to profit from market movement in any . tions of the time value decay pattern for option writing strategies. I also consider the re- expiry with the returns of options with short times to expiry. Overall, the.
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This strategy can still be a winner! We can split the diagram into four distinct regions: If the benchmark goes down by more than the option premium we will lose money as well, but the loss will be less than the benchmark loss. The put premium cushions the loss. Not very pleasant but better than losing as much as the benchmark.
If the benchmark goes down by less than the option premium we do the happy dance! We make money while the benchmark lost. We actually hedged the risk in our other equity investments. If the benchmark is up, but by less than the option premium, we beat the benchmark. We are definitely happy campers!
If the benchmark goes up by more than the put option premium we make money, though less than the benchmark. Is that a problem? We are still happy campers when that happens!
It turns out that in each of those regions I would be sitting pretty happy with my Short Put option. So the talk about how this is the worst possible return profile is vastly exaggerated. Show me the money How big is the premium in practice and how much return would we make if we consistently sold put options for the last 30 or so years? Despite selling the equity upside, writing puts would have returned more than the equity index.
So, the risk-adjusted returns of the put writing index was significantly higher: A Sharpe Ratio of 0. You get the same return for two-thirds the volatility. Markets are efficient.
Then why should any of this option-writing business work? Efficient markets are the reason why this works. When you sell puts you voluntarily subject yourself to the most undesirable and unattractive payoff profile possible: limited upside and unlimited downside potential.
The exact opposite of what everybody wants. The efficient market compensates you for taking losses when they hurt the most. Why is there not more supply of downside insurance? Nobody has the stomach anymore. Big institutional investors, like pension plans, are actually net downloaders of downside protection. If you work for a pension fund or endowment you have a great aversion to downside risk because one big drawdown is all it takes for you to lose your job.
Career risk for money managers creates demand for put options. Hedge funds and private investors with a long-term focus and a stomach to sustain temporary short-term losses and an understanding spouse! Under UMIR rule Non-clearing firms may report through the firm that is responsible for their clearing.
Continuous Disclosure A company's ongoing obligation to inform the public of significant corporate events, both favourable and unfavourable. Convertible Security A security of an issuer for example - bonds, debentures, or preferred shares that may be converted into other securities of that issuer, in accordance with the terms of the conversion feature.
The conversion usually occurs at the option of the holder of the securities, but it may occur at the option of the issuer. Corporation or Company A form of business organization created under provincial or federal laws that has a legal identity separate from its owners.
The shareholders are the corporation's owners and are liable for the debts of the corporation only up to the amount of their investment. This is known as limited liability. With some approved exceptions, crosses can only occur within the current bid and ask for the stock.
Crossing Session After the close of the regular trading day, crosses can be executed between p. ET at the last sale price of the stock. Cum Dividend With dividend. The owner of shares downloadd cum dividend is entitled to an upcoming already-declared dividend. The opposite of this is ex dividend. Cum Rights With rights.
The owner of shares downloadd cum rights is entitled to forthcoming, already-declared rights. The opposite of this is ex rights. Cyclical Stock A stock of a company in an industry sector that is particularly sensitive to swings in economic conditions. Dd Daily Price Limit The maximum price advance or decline permitted for a futures contract in one trading session compared to the previous day's settlement price.
Day Order An order that is valid only for the day it is entered. If the order is still outstanding when the market closes, it will be purged overnight.
Debenture A long-term debt instrument issued by corporations or governments that is backed only by the integrity of the borrower, not by collateral. A debenture is unsecured and subordinate to secured debt. A debenture is unsecured in that there are no liens or pledges on specific assets. Debt Value The total dollar value of volume traded on one side of the transaction for a specified period.
It equals price multiplied by volume divided by Debt Volume The number of debt instruments traded on one side of the transaction for a specified period multiplied by the face value of the debt instrument. Defensive Stock A stock downloadd from a company that has maintained a record of stable earnings and continuous dividend payments through periods of economic downturn.
Delayed Delivery Order A special term order in which there is a clear understanding between the downloading and selling parties that the delivery of the securities will be delayed beyond the usual three-day settlement period to the date specified in the order.
Delist The removal of a security's listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.
Delisted Issue The status of a security that is no longer listed on the Exchange. The security could trade on another market. A listed issuer is delisted when the last listed security of the issuer is delisted. Delivery The tender and receipt of the underlying commodity or the payment or receipt of cash in the settlement of an open futures contract. Delivery Month The calendar month in which a futures contract may be satisfied by making or taking delivery. Delta A ratio that measures an option's price movement compared to the underlying interest's price movement.
Delta values have a range of 0 to 1. Deep in-the-money options have deltas that approach 1. Demand The combined desire, ability and willingness on the part of consumers to download goods or services. Demand is determined by income and by price, which are, in part, determined by supply. Discretionary Account A securities account created when a client gives a partner, director or qualified portfolio manager of a Participating Organization specific written authorization to select securities and execute trades on the client's behalf.
Distribution The portion of the issuer's equity paid directly to the security holders. The issuer or its representative provides the amount, frequency monthly, quarterly, semi-annually, or annually , payable date, and record date. Diversification Limiting investment risk by downloading different types of securities from different companies representing different sectors of the economy. Dividend The portion of the issuer's equity paid directly to shareholders.
It is generally paid on common or preferred shares.
An issuer is under no legal obligation to pay either preferred or common dividends. Dividend Reinvestment Plan A means of reinvesting dividends, which would otherwise be paid to the shareholder in cash, in additional stock of the company. Dividend Yield Equal to the indicated annual dividend rate per share divided by the security's price.
Dollar Cost Averaging Investing a fixed amount of dollars in a specific security at regular set intervals over a period of time. Dollar cost averaging results in a lower average cost per share, compared with downloading a constant number of shares at set intervals.
The investor downloads more shares when the price is low and downloads fewer shares when the price is high.
The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The DJIA is one of the most widely quoted stock market averages in the media. Downtick A trade is on a downtick when the last trade occurred at a price lower than the previous one.
The trust receives royalty income from producing properties essentially, net cash flow and then sells interests in the trust called trust units to investors. Conventional oil and gas royalty trusts are actively managed portfolios holding assets of mature producing properties. Substantially all of the cash flow generated by the oil and gas assets, net of certain deductions, such as administrative expenses and management fees, is passed on to the unit holders as royalty income.
Capital expenses may also be deducted, but are usually subject to restrictions on the amount. The distributions are highly dependent upon the cash flow generated by the trust. In general, the largest variable in determining the level of cash flow is the price of crude oil and natural gas. Royalty trusts provide an alternative from owning the shares of individual companies for investors to participate in the oil and gas sector.
Equities Common and preferred stocks, which represent a share in the ownership of a company.
The value equals the number of securities multiplied by the offering price. The various forms of financial instruments may have an effect on determining the price or the number of securities. Equity Option An option contract that grants the holder the right to download or sell a specific number of shares of stock at a specified price during a specific period of time.
Equity Price The price per share traded. Equity Value The total dollar value of volume traded on one side of the transaction for a specified period. It equals price multiplied by volume. Equity Volume The total number of shares traded on one side of the transaction. Escrowed Securities The outstanding securities of an issuer that are not freely tradable, because they are subject to an escrow agreement that restricts the ability of certain security holders of that issuer from trading or otherwise dealing in those securities until certain conditions are satisfied.
European-Style Option Options that can be exercised only on their expiration date. Ex Dividend The holder of shares downloadd ex dividend is not entitled to an upcoming already-declared dividend, but is entitled to future dividends.
Ex Right The holder of shares downloadd ex rights is not entitled to already-declared rights, but is entitled to future rights issues. Exchange Offering Prospectus EOP A form of prospectus that allows a company to conduct a prospectus offering through the facilities of a stock exchange, rather than issuing them directly to the public.
The company then applies to list the securities on the exchange. Exchangeable Security A security of an issuer that is exchangeable for securities of another issuer usually a subsidiary in accordance with the terms of the exchange feature. The exchange may be at the option of the holder or at the option of the issuer of the securities.
Exchange-Traded Fund ETF A special type of financial trust that allows an investor to download an entire basket of stocks through a single security, which tracks and matches the returns of a stock market index.
ETFs are considered to be a special type of index mutual fund, but they are listed on an exchange and trade like a stock. Also known as an index participation unit IPU. The ex-d date is two clearing days before the record date. The exchange that the issue is listed on sets the ex-d date. Exempt Issuer A listed issuer that has satisfied listing requirements as outlined in Section of the Listing Requirements Manual. An exempt issuer is not subject to special reporting rules. This status is generally reserved for senior listed issuers.
Exercise The act of an option holder who chooses to take delivery calls or make delivery puts of the underlying interest against payment of the exercise price. Expiration Date The date at which an option contract expires. This means that the option can't be exercised after that date.
Ff Face Value The cash denomination of the individual debt instrument. It is the amount of money that the holder of a debt instrument receives back from the issuer on the debt instrument's maturity date. Face value is also referred to as par value or principal. Filing Statement A disclosure document submitted by a listed company to outline material changes in its affairs.
Filing statements are not used for the purposes of a financing. Floating Rate Security A security whose interest rate or dividend changes with specified market indicators. A floating rate is one that is based on an administered rate, such as a prime rate.
It can be an initial public offering IPO , secondary offering, or private placement. Freeze An interruption in trading on a stock, triggered when an order violates parameters set by TSX. Frequency Frequency refers to the given time period on an intraday, daily, weekly, monthly, quarterly or yearly perspective.
Typically, choosing a weekly or monthly perspective when looking at several years of data makes it easier to identify long-term trends. Daily charts are useful for active traders and short-term time period charts. The "Daily", "1-Minute", "5-Minute", "Minute" and "Hourly" frequency are used for intraday charts and the remaining choices are applicable to end-of-day charts. Front Month The closest month to expiration for a futures or option contract.
Futures Contracts to download or sell securities at a future date. GICS are used to classify the constituents of many indices worldwide. GICS is a four-level classification system. The four levels are: sector, industry group, industry, and sub-industry. Good Delivery The term used to describe a security that is in proper form to transfer title, which means that the registered owner has endorsed it. To settle a sale, the certificate must be surrendered on good delivery by the seller.
A certificate that bears a share transfer restriction will not constitute good delivery. This type of order is also referred to as an open order. This is another kind of open order. Growth Stock The shares of companies that have enjoyed better-than-average growth over recent years and are expected to continue their climb. Guaranteed Investment Certificate GIC A deposit instrument most commonly available from trust companies or banks requiring a minimum investment at a predetermined rate of interest for a stated term, such as one or five years.
GICs are generally non-redeemable and non-transferable before maturity. Hh Halted Issue A temporary stoppage of trading of the listed securities of an issuer, which may be imposed by the Exchange, its agent Market Regulation Services Inc. RS , or voluntarily requested by the issuer. Usually an issuer's listed securities are halted pending a public announcement of material information about the issuer, but the Exchange or RS may also impose a halt if the issuer is not in compliance with Exchange requirements or if the Exchange determines that it is in the public interest to do so.
Hedge A strategy used to limit investment loss by making a transaction that offsets an existing position.
High Price The highest price at which a board lot trade on a security was executed during a trading session. Ii Improving the Market An order that either raises the bid price or lowers the offering price is said to be improving the market. The market improves because the spread between the bid and offer decreases. Income Deposit Security IDS An exchange-traded, fixed income-like instrument consisting of a subordinated debt security and a share of common stock packaged together to form a tax-efficient delivery mechanism to distribute an issuer's free cash flow to its investors.
Investors are paid dividends from the common share component and interest from the subordinated debt. The structure was created for U. IDSs do not use the trust structure. Also known as income participating securities IPS.
Income Stock A security with a solid record of dividend payments and which offers a dividend yield higher than the average common stock. Income Trust Also called income funds. Income trusts are trusts structured to own debt and equity of an underlying entity, which carries on an active business, or has royalty revenues generated by the assets of an active business.
By owning securities or assets of an underlying business, an income trust is structured to distribute cash flows, typically on a monthly basis, from those businesses to unit holders in a tax-efficient manner. The trust structure is typically utilized by mature, stable, sustainable, cash-generating businesses that require a limited amount of maintenance capital expenditures.
An income trust is an exchange-traded equity investment that is similar to a common share. There are four categories of income trusts: business trusts; real estate investment trusts REITs ; energy trusts; and power, pipeline, and utility trusts.
Index A statistical measure of the state of the stock market, based on the performance of stocks. The ICCP is calculated without reference to volatility parameters.
A key objective of broadcasting the ICCP is to provide market participants with an early indication of potentially large price movements at the close. Inflation An overall increase in prices for goods and services, usually measured by the percentage change in the Consumer Price Index.
Inside Information Non-public information pertaining to the business affairs of a corporation that could affect the company's share price should the information be made public.
Insider All directors and senior officers of a company, and those who are presumed to have access to inside information concerning the company. Insider Trading There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions.
The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal. Intermarket Surveillance Group ISG An international committee comprised of members from 31 exchanges around the world, including every major stock exchange.
Membership in the ISG allows all members to share surveillance and investigative information to ensure that each regulator has access to the necessary information to effectively regulate its marketplace.
The ISG promotes effective market surveillance among international exchanges and RS involvement helps ensure they are continually in touch with other regulators and part of the development of international best practices.
It consists of a two-character alphabetic country code specified in ISO , followed by a nine-character alphanumeric security identifier assigned by a national security numbering agency , and then an ISIN check-digit.
Intrinsic Value The difference between the current market value of the underlying interest and the strike price of an option. In-the-money is a term used when the intrinsic value is positive. Investment The download or ownership of a security in order to earn income, capital or both. Investments may also include artwork, antiques and real estate. Investment Advisor A person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products.
Investment Capital Initial investment capital necessary for starting a business. Investment capital usually consists of inventory, equipment, pre-opening expenses and leaseholds. Investment Counsellor A specialist in the investment industry paid by fee to provide advice and research to investors with large accounts. Investment Dealer Securities firms that employ investment advisors to work with retail and institutional clients.
Investment dealers have underwriting, trading and research departments. The Association's role is to foster efficient capital markets by encouraging participation in the savings and investment process and by ensuring the integrity of the marketplace.
Investment Fund A closed-end fund that offers investors the ability to download a security that represents a portfolio of investments with a specific investment strategy.
These products use funds raised through a public offering to invest in a portfolio of securities, which are actively managed to create income streams for investors, typically through a combination of dividends, capital gains, interest payments, and in some cases, income from derivative investment strategies.
These funds are not directly related to an operating business. Some examples are: funds of income funds, senior loan funds, mortgage-backed security funds, and commodity funds. Investor Relations A corporate function, combining finance, marketing and communications, to provide investors with accurate information about a company's performance and prospects.
It is the stated prospectus price multiplied by "the number of securities issued under the IPO plus the over allotment". Issue Any of a company's securities or the act of distributing the securities. Issued shares refer to the portion of a company's shares that have been issued for sale.
A company does not have to issue the total number of its authorized shares. Issue Status The trading status of a class or series of an issuer's listed securities, such that a class or series of listed securities of an issuer may be halted, suspended, or delisted from trading.
Issued and Outstanding Securities Commonly refers to the situation where the number of issued securities equals the number of outstanding securities. However, under certain corporate statutes in Canada, an issuer may have issued securities and then redownloadd those securities without cancelling them.
In that case, the securities are issued but are not outstanding. As a result, the number of issued securities does not equal the number of outstanding securities.
Issuer Status The trading status of a listed or formerly listed issuer. Issuer status types include: delisted, listed, suspended, and trading. Jj Jitney Order The execution and clearing of orders by one member of a stock exchange for the account of another member.
For example, investment dealer A is a small firm whose volume of business is not sufficient to maintain a trader on the exchange. Instead, investment dealer A gives its orders to investment dealer B, a larger organization which is a member of the exchange, for execution. Investment dealer A pays a reduced percentage of the normal commission. Junior Corporation A young company in the early stages of operations and growth.
If the MOC closing price acceptance parameters are exceeded, it equals the last board lot sale price of the security on the exchange in the regular trading session.
For any other listed security, the last sale price equals the last board lot sale price of the security on the exchange, in the regular trading session.