Insider Strategies For Profiting With Options.pdf

Traders’ Library

Options Trading Forum

Chicago, October 10, 2001

Insider Strategies for

Profiting With Options

Presentation by Max G. Ansbacher

President, Ansbacher Investment Management, Inc.

45 Rockefeller Plaza, 20th Floor, NY, NY 10111

Phone 212 332-3280 Fax 212 332-3283

www.ansbacherUSA.com

A-1

Ansbacher Option Program page 1

PROFITABLE OPTION TECHNIQUES

I. BUY PUTS WHEN STOCKS LOOK VULNERABLE AND

SELLING STOCKS IS INADVISABLE

A. Reasons Investor May Not Sell Stock even when Pessimistic

1. Low cost basis

2. Likes stock as long term investment

3. Recognizes they could be wrong about down turn

B. Puts Can Actually Provide Portfolio Insurance

1. Guarantee right to sell at fixed price

2. In effect puts go up as stocks go down

3. Relatively low cost for short term insurance

C. Selecting the Proper Put Strike Price

1. Puts have many strike prices

2. The lower the strike price the less expensive the put

3. Low strike price put like large deductible in auto insurance

4. Proper strike price trade off between cost and amount

of deductible

D. Selecting the Proper Put Duration

1. Investor's thoughts about when down turn will arise

2. Cost per month for Put

E. Puts for an Entire Portfolio

1. There are no puts for many small cap stocks

2. Investors may want to take a single action which will

assist entire portfolio

3. Stock index puts provide coverage for an entire selection of stocks

A-2

Ansbacher Options Program p. 2

F. An example of Puts Providing Stock Insurance

TABLE 1

IBM at 104.95, at 8/10/01 close

Put Prices

Nov

Dec

April

Strike

Price

100

2.15

3.90

6.60

1.15

2.55

4.90

0.60

1.50

3.60

0.30

1.10

2.55

Conclusion: Longer term puts generally less expensive on a

per week basis. Lower strike prices are significantly less

expensive

II. INCREASE CASH FLOW FROM STOCKS BY SELLING COVERED

CALLS

A. Selling Calls on Stocks Brings in Cash

B. Provides limited hedge in case of down turn

C. Is Profitable in range from up moderately to down moderately

D. Must be willing to Sell Stock

A-3

Ansbacher Options Program p. 3

E. Disadvantages

1. If stock rallies sharply, profit opportunity lost

2. If stock rallies sharply, selling next call requires

difficult decision

3. May give illusion of downside protection

4. Stock often called away just before dividend

TABLE 2

Call Prices (Bids) IBM 102.11 August 16, 2001

Strike Price

Sept

Oct

Jan ’02

100

4.70

6.70

10.00

105

2.05

4.10

7.40

110

.75

2.25

5.20

115

.25

1.05

3.50

120

.50

2.30

125

1.35

130

1.00

A-4

Ansbacher Option Program p. 4

III. BUYING CALLS AND/OR PUTS FOR LEVERAGE OR A

VOLATILITY PLAY

A. Buying calls offers unlimited profit with limited liability

B. What is probability of making a profit?

C. No record of success

D. Must be very certain stock will go up significantly in short time

period. Inside information problem.

E. Better methods

1. Buy more stock by using margin

2. Sell puts

3. Bull spreads

a. Buy lower strike price call, sell higher strike price

b. Lowers break even point

c. Basically buying a call

IV. UNCOVERED OPTION WRITING -- MY FAVORITE STRATEGY

1. Demographics of Options Usage Favor Writers

A. Speculators buy them to get rich quick

B. Equity portfolio holders buy puts to provide portfolio insurance

A-5

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