While visiting with my relatives in Canada last month, my aunt turned me onto a book from her investing club entitled Get Rich With Options. Despite the unfortunate used-car-salesman-esque title, it was a surprisingly good read.
Here are the book's take-aways so you can get rich and profit. Of course, the usual investing disclaimers apply. If you go broke following this advice, don't blame me. If, on the other hand, you get rich... you can buy me lunch.
'''Sell slightly out-of-the-money covered calls on your long stock positions.''' This is the one that most people already know about. The vast majority of calls expire without being assigned, so most likely you will get to pocket the premium. If your stock does get called away, then you at least got to sell your stock for a decent price.
'''Buy deep-in-the-money calls instead of buying a long position in a stock.''' The call will track the stock's market value, which translates into a higher ROI if the stock rises and less risk if the stock drops.
'''Sell slightly out-of-the-money naked puts on a stock that you want to own.''' You don't care if the put gets executed (you were going to buy the stock anyway). And you get to pocket the premium and get the stock at a slightly lower price. Probably the only time it's safe to sell a naked put. Unfortunately, many brokers (including mine) do not allow selling of puts.
'''Option credit spreads.''' This one is not as straight forward as the other three. It requires a lot more research. With a bull put spread, you are assuming the stock will trend up, so you sell one put with a high strike price and buy another put with a lower strike price. With a bear call spread, you are assuming the stock will trend down, so you sell a call with a low strike price and buy another call with a higher strike price. In either case, the strategy is to limit your profit or loss and take advantage of the decay of time value. Investopedia elaborates.
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