Options Trading for the Conservative Investor: Increasing Profits Without Increasing Your Risk

I would consider myself a value investor and don't buy stocks with large p/e, p/book or p/sales ratios. I never considered options, because I thought they were only for speculators, until I read an article in Barron's mentioning options in a conservative way. Then I came across this book, and I have to say, it is exactly what I was looking for. It explains in a great way how to use options when you're serious about "investing" and not a gambler/speculator. The book doesn't of course tell you how get rich quick (otherwise it would not be a good book). But it tells you how to take advantage of market conditions without adding risk to your stock portfolio (with the exception of the risk of lost optortunity). The book uses actual excamples (using closing prices of October 2004) and walks you through most of the scenarios with real option/stock prices, which is a great feature. The only negative I have with this book, is, as my review title states, that he keeps repeating himself to the point, that it really gets annoying. He probably mentions 20 times that, in a conservative way, you should only consider options of a stock that you consider good long term investments. That is a valid point, and one of the assumtions for the entire book. But it would have been enought repeating it maybe 3 - 5 times. There are numerous examples of repetition and sometimes I wonder if he wrote the book in a rush without reading the preceeding chapters. There are a lot of sub-chapters, which are sometimes just pure repetition of other sub-chapters in another chapter. There is one scenario which I wish he would have walked through with actual stock prices. The scenarios of rolling up/forward. Since from my (theoretical) understanding, it is very difficult on a net credit basis. But I'll try that out for real, and then I'm sure I will figure it out. Anyway, I still give this book 5 stars, because the strategies described in this book are invaluable for any serious investor and I can't wait until my broker finally approves me for option trading and I can try these strategies in the real world. I wish I had had that knowledge a couple of years ago, when I was holding some stocks, which had a huge runup, but I didn't want to sell them, because I wanted to keep them for the long run. Now I would know what my "options" are of protecting paper profits.

This book was useful to me in thinking about market risk and especially the usefulness of short puts. It was very readable and logically consistent throughout. While I am not a conservative investor by his standards (I perform high frequency scalping trades) this book was useful even to me in working over some option strategy concepts in my mind.

First and foremost, Thomsett's books are clear, compressive, and easy to follow. You'll never find yourself confused or dumbfounded by the hardest topics when master author Thomsett teaches them. Thomsett has written options books for the novice before however in this book he focuses on strategies that conservative investors can employ and which ones to avoid. Often time's equity options are something that are thought and used in high-risk schemes but Thomsett shows their value in how they can be used to reduce risk. While the strategies explained in this book won't and never promise to make you a King's random, (but they could actually save you the same amount). It does provide sound and proven techniques. It will show how you can use options to hedge and protect gains in your investments. How you can produce extra income from the stocks you already own. How you can use your equity or cash balance to produce extra income and buy stocks at a discount. And most of all, how you can reduce stock risk and create steady capital gains and income from your portfolio. You may not get rich quick but you certainly won't go to the poor house as Thomsett shows you can you reduce your risk and increase your profits in stocks.

Most conservative and moderate investors will tell you they seek increased returns without adding additional levels of risk to their portfolios. They are not adverse to risk; they just seek to control it. In short, they seek to 1. Preserve spending power after both inflation and taxes. 2. Seek to avoid unacceptable market, liquidity and diversification risks. 3. Protect profits without loss of invested positions. If you fit this investment profile, then Michel C. Thomsett has written this book for you. In it he demonstrates how carefully selected options strategies can help you consistently improve your returns without adding additional portfolio risk. Options, he argues, do not have to be exotic, high risk or complicated. In fact, they can be employed as a powerful tool to reduce risk. He wisely sets his ground rules early in the book. They are: 1. Limit options activity to stocks you have pre-qualified. 2. Have faith the market with rise over time. 3. Accept the value of fundamental analysis. 4. If trade down, be prepared to add to your position. 5. Believe there are an adequate number of stocks which will meet your investment standards. Thomsett's book is well-written and illustrated - even if you are not familiar with options. In 255 pages he covers options strategies suitable for conservative investors. He includes covered call writing, contingent purchase strategies, rescue strategies to use when markets fall and combination strategies that produce cash to bolster current income. If conservative and moderate investors remain true to their goals, options are a wonderful tool. However, Thomsett is experienced enough to acknowledge that deep in the heart of every market hedger is a speculator eager to spread his or her wings. Stick with the author's ground rules and you will avoid the market's playground of temptations.

It is rare that you hear the words options and conservative in the same sentence so most readers probably turn their eye brows up at this books title. The author believes that there is a way for the risk adverse investor to use a strategy to trade a narrow band of options and beat asset classes averages. His argument is that some conservative investors are investors that are open to expanding beyond the Dow and CD's yet are still going to make sure that they examine the risks and make sure that they are acceptable. We have all heard that high risk means the potential for high return. The problem is the high risk part. The author claims that by increasing your knowledge you can limit the risk and leave the majority of the losses to the inexperienced and uninformed. This book gives the reader a limited number of strategies appropriate for conservative investors that are looking to limit risk while expanding investment choices. Overall the book was well written and easy to understand. I do not know if I am going to jump into options trading, but if you are looking at new investment options, this author explains this asset class and gives the reader a nice set of strategies.