Bearish Outlook
Bear Call Spread in the XIU Market
Patrick Ceresna
The stock market has rallied a long way from the March lows. The iShares S&P/TSX Equity 60 ETF (symbol XIU) is up almost $8 from that scary day on March 23, 2020 when the market reached bottom. The rally has been steady, with few pullbacks. However, it is completely natural to expect that, eventually, there will be a...
Stock Repair Strategy Using Options
Patrick Ceresna
The coronavirus crisis seemed to come out of nowhere. It caught retail and professional investors off guard equally. Almost overnight many stocks fell by more than 25%, and although some have managed to recoup their losses over the past few months, many have not. What is an investor to do in such an environment? One could...
Harvesting Premium By Shorting Out-of-the-money Calls
Patrick Ceresna
Have you ever been in the fortunate position of holding a stock that had rallied a long way, but you were concerned it had gone too far too fast, yet you did not want to sell your position? Or, have you ever thought that the market would go sideways for a while, and you did not expect your stocks to rally? Maybe you have seen...
Using options in times of market uncertainty
Martin Noël
In times of market uncertainty like we are seeing now, many investors turn to options for the protection they can provide. Although the markets have recouped a good portion of their losses of the past few months, we cannot rule out another plunge that could test the depths of the recent decline. The high volatility in today’s...
Profiting from the second-wave downturn
Martin Noël
In a bear market, the lows of the first market downturn are often retested following a rally like the one we have just seen. This article examines how put options can be used to maximize the return on a bearish projection. As can be seen in the following chart, the unit price of the iShares S&P/TSX Capped Financials Index...
Making the most of volatility in these uncertain times
Martin Noël
In our last article we discussed how to reduce the risk associated with the time-value decay of options in a directional position. Now we will take advantage of the market meltdown to discuss the implied volatility in the price of an option, how it reflects the degree of market uncertainty over future price movements in the...
Reduce the Risk Associated with Time Value Decay
Martin Noël
Reduce the risk associated with time value decay In this article, we will examine how to reduce the risk associated with the time value decay of options in a directional position, as well as how this affects the strategy’s payoff profile. As can be seen in the following chart, the price of shares in BCE Inc. (BCE) have...
Hedging with Delta
Martin Noël
As can be seen in the following chart, the price of shares in National Bank of Canada (NA) recently peaked at $73.22, representing an increase of 21.85% in 110 days, for an annualized rate of return of 72.50%. It is unlikely that this pace of growth can be sustained over an extended period of time. In addition, there are signs...
Writing covered call options to profit from a period of consolidation
Martin Noël
As can be seen in the following graph, the price trend for shares in the Canadian National Railway Company (CNR) appears to have faltered. The stochastic oscillator indicator has just fallen below 75, much like it did in June 2019. At that time, the price of CNR stayed in a channel for many weeks. As long as the oscillator...
Covered Calls: Managing Risk Exposure and Generating Value During Volatile Times
Montréal Exchange
Key facts on covered calls This strategy consists of writing a call that is covered by an equivalent long stock position. It represents a simple way for investors to manage their short-term risk exposure, allowing them to earn premium income (i.e. the money received from writing the calls) in return for part of the stock’s...
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