Options Archives

Jun20
Equity Indexed Annuities Or World Cup Currywurst

Bradley P. Halverson, CFA, CPA wrote an article today 20 June 2006 in MeridianMagazine.Com on Equity Indexed Annuities.  If I understood him correctly he's not a big fan. 

An Equity Indexed Annuity is often marketed as offering stock market returns without the downside risk.  The return is linked to something like the S&P 500.  It offers a guaranteed minimum return around 3%.  HOWEVER, the devil is in the details.  What you are really buying is an ordinary fixed annuity with several attached options. 

The first option pays the minimum guarantee stated in the contract.  The higher the minimum guarantee, the more it costs.  The structure of the Equity Index Annuity hides this cost from you.  You usually pay for the option with two other options.  These options pay you a percentage of the upswing in the equity index and cap the maximum upside you can earn. 

   

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Feb 7
Options Trading - Preparation
If you decide after reading about the risks and the benefits of using options to trade them, what should you do?  I recommend the following.First, I would read the educational brochure produced by the CBOE (Chicago Board Options Exchange).  It... Continue Reading
Feb 6
Option Risks
Last post I wrote to introduce the concept that options and other derivative products are tools. They can be used to increase risk or to decrease risk of a stock or a portfolio. In the pieces on Options Trading Strategy I wrote... Continue Reading
Feb 3
Options - Worth the Risk?
I'm going to divert from my series on option trading to answer a question from Devin.  Devin asks how to determine if options or other risky strategies fit within your personal risk tolerance.Options and other derivative products (things that derive... Continue Reading
Feb 2
Option Trading Strategies - Part II
What option strategy should you use if you are very bearish (negative) on the market?  You could buy a put option.A put option gives you the right to sell a stock at a certain price (the strike price) at during... Continue Reading
Feb 1
Basic Option Strategies - Part I
I've given a basic explanation of options.  I've explained about long term options called LEAPS.  Now I am going to start a few posts on option strategies.  Today I will write about a strategy to use if you are bullish... Continue Reading
 


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