Options Can Buy You a Little Safety
Less enlightened investors typically associate options with tremendous risk in much the same way your mother might, for example, associate the drop-dead gorgeous redhead you bring home for Christmas dinner with the possibility that you'll never want to see your family again.
Given this site's family orientation, I'll leave the risk-reward analysis of the latter to Maxim, but not before trying to dispel the notion that conventional wisdom is typically wrong, whether it's applied to options or potential mates. If this has been historically true of options, it is even more true today. The market is primed for investors to use options for the most safe and stable of purposes: reducing risk.
Identifying the Trend
Increasingly, over the past week or so, there has been more talk of married put plays -- buying a put against a long position -- than we've seen in a while. And while put-buying typically shows that investors are concerned about the market, the equity climate could be at one of those inflection points where put-buying is translating into the end of call-selling.
Examining ETFsMike Schwartz, a senior options strategist, is spending much of his time trying to figure out how to pair options with exchange-traded funds for risk-averse investing.
| Enron vs. ETF
The Energy SPDR fares much better than Enron shares.
Merger speculators must have offered up sacrifices to the investment banking gods this week as their bets on a takeover bid for Golden State Bancorp (GSB) came through Tuesday. The buyer was Citigroup (C). Call options activity percolated for three days leading into the announcement, with little hint of what was actually shaking out. On Tuesday, before the news was released in a post-close announcement, Golden State call options showed volume of 1,400 contracts, compared with an average total volume of 319.
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