Create Your Own Hedge Fund: Increase Profits and Reduce Risks with ETFs and Options
Mark D. Wolfinger
Format: PDF / Kindle (mobi) / ePub
Discover a practical trading strategy that combines options and ETFs.
Create Your Own Hedge Fund explains how exchange-traded funds can be used in conjunction with an options strategy to attain steady growth. Beginning with a tutorial on options and ETFs, the book goes on to describe both investment approaches in great detail providing you with a trading strategy that generates higher returns than buy-and-hold investing -- and allows you to reduce risk by adopting a hedging strategy. Filled with in-depth insights and expert advice, this book is intended for you if you're a sophisticated individual investor or a professional investor, trader, or other money manager looking to update your arsenal of investment tools.
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support that statement. INVESTMENT OBJECTIVES Option writers have different investment objectives, depending on the specific option strategy chosen. Naked call writing is a bearish strategy adopted by investors who expect time to pass, the stock to remain below the strike price, and the option to expire worthless, enabling them to keep the entire proceeds from the sale of the option as their profit. This high-risk strategy (potential losses are unlimited) is too risky for our purposes and is not
Regardless of the source of an investment idea, most individual investors never think twice about whether the new investment is suitable or whether it helps them achieve their overall investment goals. In fact, many have no overall objectives in mind and simply make new purchases to produce a portfolio based on chaos. Some investors are happy with their results, while others are not. Modern portfolio theory (MPT) teaches us that this is a poor way to invest. With so many investors accumulating
are more actively traded. Buy 900 MDY at $109, investing $98,100. Sample Portfolio #5: Larger Companies Diamonds (DIA), the ETF representing ownership of the 30 stocks in the Dow Jones Industrial 126 CREATE YOUR OWN HEDGE FUND Average, is a good choice for an investor who wants to concentrate on owning shares of large, well-known companies. If you prefer to own an ETF that has more than 30 stocks in its portfolio and is better diversified then OEF, the iShares S&P 100 index fund may be
choices; other times there may be just two or three options from which to choose. It’s important to understand how to think about making a final decision. There are no wrong decisions, but you have much to gain by making the choice that provides the best fit for your investing style. In this chapter we’ll go through an example, in detail, showing the thought processes involved in considering each of the choices. That puts you in position to make an intelligent decision when selecting the option
insight on which option you would choose to sell under similar circumstances. Table 14.1 lists the strike price of each option, the premium (price of the option) you collect when selling, the amount of protection against loss it provides, and your maximum potential profit. That profit potential is divided into two parts. The time premium in the option is the maximum profit you can earn as a result of writing the call. The second part of the potential profit represents the maximum capital gain you