Loss Aversion

[rkbabang]

What is a good introduction book to options for an idiot like me?

 

Not a book, but not a bad place to start:

http://www.cornerofberkshireandfairfax.ca/forum/strategies/bac-leverage/

 

[frommi]

What is a good introduction book to options for an idiot like me?

 

I can recommend "Option Volatility & Pricing" from Sheldon Natenberg.

[ERICOPOLY]

Similar to something else I think about, which is to buy out-of-the-money puts on individual companies that you both understand and want to own in the next crash.

 

Once their stock prices decline to the strike price of the puts, you have enough premium value in those puts to flip them into calls.  Then you profit on the recovery as the calls appreciate.

 

The benefit here is that the premiums for individual names might skyrocket -- this ensures you will be able to afford them without stressing out about the premiums.

 

Or in taxable portfolio margin account, just keep the puts and load up on the common (hedged by the puts).  This way there is no taxable event from selling the puts.

 

Can you flesh this out in an example?

 

Sure, just buy some $10 strike BAC puts and then put in a $10 limit order to purchase a corresponding number of common stock.

 

Then you know that if the stock crashes to that level, you'll own the stock without any risk of further price decline.

 

I know the puts cost money, but only 2/3 of it is mine -- the other 1/3 "belongs" to the IRS and California (the puts offset taxable dividends).

[dpetrescu]

What is a good introduction book to options for an idiot like me?

 

I can recommend "Option Volatility & Pricing" from Sheldon Natenberg.

 

I first read about leaps options in Michael Lewis's Big Short. Apparently, a group of college kids started a fund in their garage and made a few hundred million. They said they learned about leaps from Greenblatt's Stockmarket Genius book, I read that next. A while later I came upon a dusty old 1979 copy of Sheldon Natenberg's Option Volatility & Pricing...what a great book. I second and third it.