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Put Option Strategies for Smarter Trading: How to Protect and Build Capital in Turbulent Markets by Michael C. Thomsett

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9. Puts in Contrary Price Run-ups: Safe Counter-Plays During Bear Markets

If you have studied options, you already know that premium levels vary widely. The degree of volatility in a particular stock directly affects option premiums as a reflection of market risk. It is a common mistake to focus on the higher price potential in strategies such as covered calls and other shorts, but the higher premium also indicates higher volatility and market risk.

Making assumptions about price direction of a stock is a challenging task by itself. When you add the second requirement, estimating how volatile the stock is going to be, the options challenge becomes even greater. In a review of premium values, the two best-known types of value are predictable ...

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