Options: The Essential Guide for Getting Started in Derivatives Trading, Tenth Edition

ISBN-13: 9781547416141 / Angielski / Miękka / 2018 / 456 str.

Thomsett, Michael C.

Spis treści

Part I: The Basics 1

Chapter 1: Calls and Puts: Defining the Field of Play  3

Equity Investments  3

Debt Investments  4

Investments with No Tangible Value: Options  5

Trading Options on Exchanges  7

Calls and Puts  10

The Call Option  13

The Long-Term Call Option  20

Investment Standards for Call Buyers  21

How Call Selling Works  22

The Put Option  26

Option Valuation  32

Picking the Right Stock  37

Intrinsic Value and Time Value  38

Chapter 2: The Life of an Option  45

Expiration and Exercise  45

What is “Clearing”?  46

Bid and Ask  47

Order Entry  48

Types of Orders  49

Who Are the Players?  49

Chapter 3: Opening and Tracking: How It All Works  51

Terms of the Option (Standardized Terms)  51

Strike Price  51

Expiration Date  52

Type of Option  53

Underlying Stock  54

A Note on the Expiration Cycle  54

Opening and Closing Option Trades  56

Using the Daily Options Listings  56

Understanding Option Abbreviations  59

Calculating the Rate of Return for Sellers  61

Chapter 4: Buying Calls: Maximizing the Rosy View  65

Understanding the Limited Life of the Call  66

Judging the Call  70

Call Buying Strategies  76

Strategy 1: Calls for Leverage  76

Strategy 2: Limiting Risks  80

Strategy 3: Planning Future Purchases  81

Strategy 4: Insuring Profits  82

Strategy 5: Premium Buying  84

Strategy 6: Pure Speculation  85

Defining Profit Zones  87

Chapter 5: Buying Puts: The Positive Side of Pessimism  93

The Limited Life of the Put  95

Judging the Put  101

Put Buying Strategies  106

Strategy 1: Gaining Leverage  107

Strategy 2: Limiting Risks  109

Strategy 3: Hedging a Long Position  110

Strategy 4: Pure Speculation  114

Defining Profit Zones  115

Chapter 6: Selling Calls: Conservative and Profitable  119

Selling Uncovered Calls  121

Assessing Uncovered Call Writing Risks  126

A Question of Suitability  127

Selling Covered Calls  129

Assessing Covered Call Writing Risks  133

Calculating the Rate of Return  134

Chapter 7: Selling Puts: The Overlooked Strategy  139

Analyzing Stock Value  143

Evaluating Risks  145

Put Strategies  146

Strategy 1: Producing Income  147

Strategy 2: Using Idle Cash  149

Strategy 3: Buying Stock  150

Strategy 4: Writing a Covered Put on Short Stock  153

Strategy 5: Creating a Tax Put  153

Part II: Closing the Position  157

Chapter 8: Closing Positions: Profit, Exercise, or Roll  159

Defining Possible Outcomes of Closing Options  159

Results for the Buyer  160

Results for the Seller  160

Exercising the Option  162

Timing the Decision  168

Avoiding Exercise  171

Chapter 9: Paper Trading: A Test Run of the Theory  183

The Case for Paper Trading  185

Sites Worth Checking  187

www.Optionsxpress.com  187

marketwatch.com  188

www.investopedia.com  188

Proceeding with a Paper Trading Plan  188

The Dangers of Paper Trading  189

Chapter 10: Calculating the Return: A Complex Aspect to Options  193

Finding a Realistic Method  193

Annualizing Models and Guidelines  195

An Overview of Basic Calculations for Calls  198

You Close the Position and Calculate Option-Based Net Return  199

You Close the Position and Calculate Net Return Based on the Entire

Position  199

The Covered Call is Exercised, and You Calculate Option and Stock Profits

Separately  200

Any Covered Call Outcome Is Computed Strictly Based on Capital on

Deposit  200

Anticipating the Likely Return  201

Chapter 11: The Basics of Risk: What Every Trader Needs to Know  205

Volatility as the Definition of Risk  205

Historical Volatility  207

Implied Volatility  210

Pricing Models  213

Risk and Human Nature  215

Confirmation Bias  216

Anchoring  216

Herding  217

Framing  217

Selective Memory  218

Loss Aversion  218

Chapter 12: Strategies in Volatile Markets: Uncertainty as an Advantage  221

Avoiding 10 Common Mistakes  222

Modifying Your Risk Tolerance  228

The Nature of Market Volatility  229

Market Volatility Risk  230

Options in the Volatile Environment  235

Part III: Advanced Strategies  241

Chapter 13: Combinations and Spreads: Creative Risk Management  243

Overview of Advanced Strategies  246

The Spread  246

The Hedge  251

The Straddle  252

The Strangle  253

Vertical Spread Strategies  255

Bull Spreads  256

Bear Spreads  258

Box Spreads  262

Debit and Credit Spreads  265

Horizontal and Diagonal Spread Strategies  265

Altering Spread Patterns  270

Varying the Number of Options  271

Expanding the Ratio  274

Strategies with Moneyness Close to Underlying Prices  277

Variations on the Butterfly  280

Multi-Leg Option Orders  281

In Conclusion  282

Chapter 14: Hedges and Straddles: More Creativity  283

The Two Types of Hedges  283

Hedging Beyond Coverage  286

Hedging Option Positions  288

Partial Coverage Strategies  292

Straddle Strategies  295

Middle Loss Zones  295

Middle Profit Zones  298

Theory and Practice of Combined Techniques  301

In Conclusion  302

Chapter 15: Options for Specialized Trading: Leveraging the Technical

Approach  303

Swing Trading Basics  305

The Setup Signal  308

Testing the Theory  311

A Strategic View of Option for Swing Trading  313

Selection of Stocks Based on Value  313

A Stock’s Price Volatility  314

Price History (Recent and Potential)  315

The Price-To-Earnings (P/E) Ratio of the Stock  315

Fundamental and Technical Tests of the Company and Stock  316

Options Used for Other Trading Strategies  316

Swing- and Day-Trading Advanced Strategies  317

Taking Partial Profits  318

Partial Exercise  319

Add More Option Contracts in Times of Price Momentum  319

In Conclusion  320

Chapter 16: Options on Futures: Leveraging Your Leverage  321

Important Distinctions  322

Regulatory Differences  326

In Conclusion  328

Chapter 17: Synthetic Positions: Tracking the Stock  331

Synthetic Put (Protected Short Sale)  333

Synthetic Long Call (Insurance Put, or Married Put)  334

Synthetic Long Stock  336

Synthetic Short Stock  338

Split Strike Strategy (Bullish)  340

Split Strike Strategy (Bearish)  342

Collars  343

Synthetic Straddles  350

In Conclusion  353

Part IV: Risk Evaluation  355

Chapter 18: Risk: Rules of the Game  357

Identifying the Range of Risk  357

Margin and Collateral Risk  360

Personal Goal Risks  360

Risk of Unavailable Market  361

Risk of Disruption in Trading  362

Brokerage Risks  363

Trading Cost Risk  363

Lost Opportunity Risks  364

Tax Consequence Risk  365

Evaluating Your Risk Tolerance  366

In Conclusion  367

Chapter 19: Taxes: The Wild Card of Options Trading  369

Tax Rules for Options  369

Qualified Covered Calls—Special Rules  373

Looking to the Future  378

In Conclusion  379

Chapter 20: Choosing Stocks: Finding the Right Ingredients  381

Developing a Covered Call Action Plan  385

Selecting Stocks for Call Writing  387

Benefiting from Price Appreciation  388

Analyzing Stocks  390

Fundamental Tests  394

Technical Tests  398

Deciding Which Tests to Apply  400

Applying Analysis to Options—the “Greeks”  401

Beta  402

Delta  402

The Rest of the Greeks  404

Acting on Good Information  406

Putting Your Rules Down on Paper  407

In Conclusion  408

Glossary  409

Index  409

O autorze

Michael C. Thomsett, Business Writer