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Chapter 9. Stock Selection and the Option Contract

Chapter 9. Stock Selection and the Option Contract

Selecting stocks based on your risk profile is never an easy matter. In this chapter, we provide conservative guidelines for smart stock selection. The worst criterion for picking a stock is basing the selection on option premium levels. By definition, high option premiums represent greater market risk, so option premium levels are good indicators of stock market risk. We propose conservative standards, offer guidelines for managing the tax complexity of options trading, and suggest methods for using options as a part of your conservative theme.

When all possible option strategies are considered in the context of your conservative profile, what are the criteria for determining which (if any) strategies are appropriate? A recurring theme in this book is to focus on risk profiles and remain faithful to your original investing themes, limitations, and capabilities.


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