This is a rebroadcast of OICs webinar panel. In this deep dive discussion, Frank Fahey (representing...
The K.I.S.S. Option Strategy
06/05/2014 11:01 am EST
A lot of investors avoid options because they think options are complicated and very risky, but that doesn't have to be the case, says veteran money manager Jon Markman.
SPEAKER 1: Hi. I’m here today with Jon Markman, founder of Markman Capital Insight, and we’re going to talk a little bit about options today so what’s the benefit of options for investors, Jon?
JON MARKMAN: Well, you know options give investors an opportunity to leverage the money that they have for investing so if you have $1000 to invest in the S&P 500 and you expect it to go up, you can put all of that money into the SPY, which is an exchange-traded fund that represents the S&P 500, and if it goes up, if the S&P goes up 1%, you make 1%, but if you use options to execute on that idea instead, you might make 10% or 20% or more instead.
SPEAKER 1: Of leverage.
JON MARKMAN: Because of the leverage, yes. You’re taking more risk with the leverage instrument but you also get more rewards so if you have a good idea and you feel like you can execute on that idea regularly provably, then you want to use options to take advantage.
SPEAKER 1: And what is it you do to help people with options, trading options ideas and techniques?
JON MARKMAN: I have a new letter called Counterpoint Options, it’s been in operation since December of 2012, and what we do is we trade just four sets of index options, the Russell 2000, the S&P 500, the VIX, and an ETF on the VIX called VXX. With just those four instruments, we can take advantage of, when the market goes down, we can take advantage by buying calls in the S&P 500 or in the Russell and, at the same time, because investors always overreact to any movement in the indexes, we can make even more money by buying puts on the VX or on the VXX.
SPEAKER 1: Do you recommend or suggest people do any sort of options strategies, you know credit spreads, things like that?
JON MARKMAN: You know, we try to keep it in our letter, we try to keep it very simple with just buy the SPY calls or IWM calls or the VIX puts or the VXX puts at a limit price and sell it at a certain price and keep it very simple, no spreads, no condors, no butterflies, no straddles, nice and simple.
SPEAKER 1: What about on the individual stock side? How do you help people in individual stock option trading?
JON MARKMAN: Sure, with individual stocks, we always look for companies that are undervalued and likely to have some sort of catalytic event that’s going to likely make them go higher so cheap stocks, first of all, always, because they’re the ones that have the most opportunity to rise and then ones that have very compressed volatility. In other words, they’ve been relatively flat for the past month or two, which compresses the volatility that’s implied in their stock price so when stocks are cheap and also, the implied volatility is low, when you buy them with the expectation to go up, they can go up at a much sharper angle.
SPEAKER 1: What about some sort of, any covered call writing strategies? Is that not something you do?
JON MARKMAN: You know, there are people who are a lot smarter than me that do covered calls and contours and spreads and all those kinds of things. I find them a little too complicated for myself, not to mention for my subscribers, so we keep it very simple, just buying and selling option calls.
SPEAKER 1: Excellent. Thank you, Jon. Thanks for joining us at Money Show.com.
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