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Chapter 8. Combination Conservative Techniques

Chapter 8. Combination Conservative Techniques

The most impressive returns available using options involve combination strategies: spreads and straddles. With short straddles, you can achieve higher-than-average current returns. However, in utilizing these more advanced strategies, there are two important points to remember. First, the complex tax rules for such positions could jeopardize your long-term capital gains status. Second, the risks involved are conservative only if and when the basic assumptions continue to apply. These include your willingness to acquire more shares of stock and to accept exercise if and when it occurs, and your continued belief that the fundamental value of the companies remains strong.

Options traders employ a vast variety of strategies, combining options in short and long positions, hoping for various forms of price movement (or lack of movement), and hedging other positions in stock, both long and short. Most of these strategies are inappropriate for your portfolio. However, some combinations can provide a valuable way to maximize your income from options without added market risk.


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