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Options Trading for the Institutional Investor: Managing Risk in Financial Institutions by Michael C. Thomsett

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9. Alternatives to Stock Purchase

Most investors start by looking for stocks they want to buy. But with options, you have many other, safer ways to enter the market. Contingent purchase using either long calls or short puts is a powerful weapon in your strategic arsenal. You can also roll options forward to avoid exercise or apply them to recover paper loss positions. This chapter explores these ideas and demonstrates how to convert the ratio write into a risk-free conservative strategy.

Options open up a range of contingent strategies. Covered calls are interesting because they are the ultimate low-risk form of contingent sale. When exercised, the covered call is designed to produce current income consisting of both dividend income and call ...

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