Options Know-How: Potash, the Transport ETF

How much do you know about playing the stock market with options?

The following are highlighted options insights and ideas from TheStreet.com.

From Mad About Options: Bulls Kick Up Potash (Video, Aug. 4):

Jud Pyle and Matt Buckley review Jim Cramer's recent bullish comments about Potash (POT Quote) and explain why a buy-write is an appropriate options strategy. The Mad About Options crew also breaks down options ideas for AIG (AIG Quote) and PharMerica (PMC Quote).

To watch the video, click the player below:

For more information about Mad About Options, visit www.ONN.tv.

From Options Mailbag: Short the Transports:

The major benchmark is iShares Dow Jones Transportation Average (IYT Quote)... if you want to be bearish or short the sector, there are several ways to use options... The most obvious strategy would be to sell calls.

One step down on the risk ladder would be to use a sell-write. This consists of shorting the stock and simultaneously shorting put options. This is essentially the inverse of a covered call or buy-write.

Sticking with the IYT as an example, if you sold 1,000 shares and shorted 10 puts, you would have to pony up $41,500. Let's assume you want to go ahead with this trade; you short the stock at $92 and sell the September 90 put at $3.25 a contract. That gives you an effective sale price $95.25, or 3.4% above the current market price.