WOW12 – Basic Options Strategies (Capstone) – Ask any question options Presented by: Georgio Stoev December 3, 2018

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Today’s Agenda Review of existing positions/watchlist Review of basic option strategies Specific examples of the above strategies Misconceptions/Questions

Review of the positions/watchlist What is the trend of markets/sector/stock? Determine your market outlook based on the above assumption Beware of trading against the trend Review existing position on options, stop losses if any.

Review of strategies (Long Call) Long Call - a call buyer is definitely bullish in the near-term Maximum loss – limited to premium paid Maximum gain – unlimited Breakeven (expiration) strike price + premium paid Be aware of time decay/earnings No assignment risk Close well before expiration

Review of Strategies (Long Put) Long Put - a bearish strategy profiting from fall in stock price Maximum loss – limited to the amount of premium paid Maximum gain – limited but substantial Breakeven = strike price – premium, at expiration Be aware of time decay and announcements Close before expiration (2-3 weeks)

Review of Strategies (Cash-Secured Put) Outlook- short term dip in the stock price, followed by long-term appreciation Substitute to an outright stock purchase Maximum gain – is limited to the premium paid Maximum loss – is limited but could be substantial Breakeven = strike price - premium More appropriate for investors that want to own the underlying Time Value (+)

Review of Strategies (Covered Call) Outlook – mildly bullish to neutral on a stock you own or you want to own Earn premium without additional risk Maximum loss is limited but could be substantial if stock becomes worthless Maximum gain is capped to the strike price sold Breakeven = stock price – premium Strategy maybe viewed as partial stock hedge or a good exit strategy Best case outcome is to be called out

Review of Strategies (Collar) Outlook – investor is looking for a slight rise in stock but is worried about a decline Hedging strategy Maximum loss is limited (for the maturity of the collar) Maximum gain is capped to the short call strike price Breakeven doesn’t really apply Good strategy to use when uncertainties increase in the market (earnings, announcements and so on)

Things to Avoid Trading without a plan Setting unrealistic expectations Cutting profits short and letting losers run Impatience, which could lead to overtrading Improper position sizing Diversify across sectors, industries and markets Poor risk management Timing tops/bottoms Trading against the trend Too focused on being right

Moving forward Test the strategies in simulation environment first Create rules around the strategies (review past webinars) Keep a watchlist of bearish and bullish stocks/ETFs Keep a journal of your trades (wins/losses) Have fun with learning options strategies (https://www.tradingfloor.com/subjects/stock-options) Resume back on January 13th with Spread Trading Happy and safe holidays! GEOS@SAXOBANK.COM