Michael C. Thomsett

Options (eBook, PDF)

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

• Format: PDF

Produktbeschreibung

With over 300,000 copies sold, the new edition of this comprehensive mentoring guide clearly presents all of the essential information needed to learn to trade options.

Whereas most options books focus on profit and loss opportunities, this book addresses the issues of hedging market risks in an equity portfolio head on. The author presents the compelling argument that options should not be thought of as risky stand-alone trading vehicles, but offer greater value as a coordinated strategic methodology for managing equity portfolio risks as presented in numerous examples in this book.

Divided into four parts, Options reflects a guiding standard of the past nine editions and includes:

• Crystal clear explanations of the attributes and strategies of calls and puts.



• A chapter on the short life of an option. This, missing in almost every options book, is a key to understanding options trading.



• Examples in Part 1 showing different trading strategies on both sides of the trade.

The second part of the book is about closing positions; taking profit, exercising, expirations or rolling forward your position, risk analysis, profit calculations, and the impact of volatility.

The third part simplifies the complex issues of advanced strategies including the various spreads, combining spreads to successfully hedge other positions and how certain strategies work. Each spread is covered in at least one detailed example.

The final part is on evaluating risk. The unquestioned benefits of hedging risk and strategies that are virtually guaranteed to succeed that are generally the domain of the investment giants along with many examples are discussed.

The book's broad coverage makes it an incredibly valuable desk reference to any trader in options. You won't get explanations like these on the internet.

Michael C. Thomsett is a market expert, author, speaker, and coach. His many books include Stock Market Math, Candlestick Charting, The Mathematics of Options, and A Technical Approach to Trend Analysis.

Click here to see an interview with the author.

https://youtu.be/8bgrgLB3Mx4

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Produktdetails

• Verlag: De Gruyter
• Seitenzahl: 456
• Erscheinungstermin: 23. Juli 2018
• Englisch
• ISBN-13: 9781547400096
• Artikelnr.: 53957722

Autorenporträt

Michael C. Thomsett, Business Writer

Inhaltsangabe

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