Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks [NOOK Book]

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Overview

This is the eBook version of the printed book.

Brief, carefully paced lessons on options and trading strategies using verbal definitions and many trading examples for clarification. Each lesson builds on the one preceding it and explains options in plain English, from start to finish. Step-by-step coverage of controlling risk, protecting your investments -- even advanced strategies other introductory books ignore! Authored by Dr. W. Edward Olmstead, contributing editor to The Spear Report and editor of The Options Professor newsletter.

... See more details below

Overview

This is the eBook version of the printed book.

Brief, carefully paced lessons on options and trading strategies using verbal definitions and many trading examples for clarification. Each lesson builds on the one preceding it and explains options in plain English, from start to finish. Step-by-step coverage of controlling risk, protecting your investments -- even advanced strategies other introductory books ignore! Authored by Dr. W. Edward Olmstead, contributing editor to The Spear Report and editor of The Options Professor newsletter.

Product Details

  • ISBN-13: 9780132703574
  • Publisher: Pearson Education
  • Publication date: 3/20/2006
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition number: 1
  • Pages: 256
  • Sales rank: 5,375
  • File size: 1 MB

Meet the Author

Dr. W. Edward Olmstead is the editor of The Options Professor, one of the world’s leading newsletters on options trading. He is also an options analyst for Spear Capital Management. He has consulted on short-term trading strategies with a member company of the Chicago Mercantile Exchange.

Dr. Olmstead is Professor of Applied Mathematics in the McCormick School of Engineering and Applied Sciences at Northwestern University. He has taught courses that cover both the theory for options pricing and practical strategies for trading options. Dr. Olmstead has received several awards including an endowed chair for teaching excellence and has been praised by his colleagues as “the quintessential teacher in our midst.”

Read an Excerpt

PREFACEPREFACE

This book is intended for people who are just starting to learn about options as well as for those who want to advance their basic knowledge to a higher level. Much of the material in this book has previously appeared in a series of articles written for The Options Professor, a monthly online newsletter about options trading, published by Independent Investor, Inc., Bloomfield, Connecticut. Some of the material was originally developed by the author for a course on options pricing theory taught at Northwestern University, Evanston, Illinois.

Section I includes Chapters 1 through 9. These chapters contain fundamental information about options, mainly intended for the beginner. Those who have some experience with options may still find it worthwhile to skim through Section I to fill some gaps in their knowledge.

Section II includes Chapters 10 through 25. Each chapter in this section is devoted to a strategy that goes beyond the basic trade of owning a call or a put option. Some chapters are an advanced continuation of the strategy introduced in the preceding chapter. The advanced chapters are marked with an asterisk and can be passed over by beginners during their first reading of this book.

Section III includes Chapters 26 through 30. Each chapter in this section covers a topic that is intended for people with options experience who want to develop a broader background. All of these chapters are marked with an asterisk, so this whole section can be passed over by beginners during their first reading of this book.

The method of exposition in this book is primarily through example. The options concepts in each chapter are introduced and discussed in theform of example trades. Many of the examples are illustrated with risk graphs, which serve to reinforce the concepts of each strategy.

All of the trades presented in the book are taken from real situations, although the prices may have been altered slightly to simplify the presentation. In most of the examples, the real stock symbol has been replaced by the mythical XYZ or ZYX, so that the reader can focus on the discussion without any distraction related to an experience with the actual stock. In some examples, the real stock symbols have been used because it seemed particularly important to the discussion.

© Copyright Pearson Education. All rights reserved.

Table of Contents

CONTENTS

Acknowledgments

About the Author

Preface

Section I:  BasicConcepts

  • 1: Introduction
    • Why Options?
    • The Basic Concept of Options
      • Major Differences Between Stocks and Options
      • Leverage
      • Time Limitation
      • Price Movement
      • Financial Risk
    • A Detailed Explanation of Options
      • The Option Contract
      • The Call Option
      • The Put Option
    • Comments
  • 2: Option Selection
    • What Is a Cheap Option?
    • Selecting a Call
    • Overall Evaluation
    • Selecting a Put
  • 3: Entering and Exiting Option Trades 
    • Entering a Trade
    • Exiting a Trade
  • 4: The Greeks
    • Delta
      • Computing the Delta of a Call Option
      • Application of the Delta
      • Computing the Delta of a Put Option
    • Theta
    • Gamma
    • Vega
    • Rho
  • 5: Risk Graphs
    • Single Option Trade
    • Multiple Option Trade
      • Comments
  • 6: LEAPS
    • Comments
  • 7: Assignment Anxiety
    • Comments
    • Applications
  • 8: Broker Selection
    • Types of Brokers
    • Commissions
    • Trading Platform
    • Margin and Trading Limitations
    • Live Broker Assistance
    • Comments
  • 9: Miscellaneous Tips
    • Time Is Money
    • Trading with the Trend
    • Risk Capital for Options Trading
    • Tracking Trades
    • Anticipating Events
    • Real-Time Quotes
    • Market Orders with Options
    • Options Calculator

Section II:  TradingStrategies

  • 10: Vertical Spreads
    • Debit Vertical Spreads
      • Bull Call Spread
      • Bear Put Spread
      • Comments
    • Credit Vertical Spreads
      • Bull Put Spread
      • Bear Call Spread
      • Comments
  • 11*: Event-Producing Credit Spreads
    • Comments
  • 12: Calendar Spreads
    • The Rollout Maneuver
    • Comments
  • 13*: Advanced Calendar Spreads
    • Volatility Skew Trades
      • Comments
    • Ratio Calendar Spread Trades
      • Comments
    • Deep-in-the-Money LEAPS Put Calendar Spreads
    • Diagonal Calendar Spread Trades
  • 14: Covered Calls
    • An Idealized Trade
    • A Realistic Trade
    • Covered Call vs. Naked Put
    • Comments
  • 15: Straddles and Strangles
    • The Straddle Trade
      • Comments
    • The Strangle Trade
  • 16: Stock Repair and Stock Enhancement
    • Stock Repair Strategy
    • Comment
    • Stock Enhancement Strategy
  • 17: Married Puts
    • Comments
  • 18: Collars
    • Comments
  • 19*: Advanced Collars
    • Comments
  • 20: Naked Option Writing
    • The Risk of Naked Option Writing
    • Acquiring Stock with Naked Puts
  • 21: Stock Substitutes
    • Synthetic Long Stock
    • Comments
    • Deep-in-the-Money Put
    • Deep-in-the-Money Call
  • 22: Backspreads
    • Comments
  • 23: Butterfly Spreads
    • Standard Butterfly Trade
      • Comments
    • Butterfly Trade with Adjustments
      • Comment
    • Unbalanced Butterfly Trade
  • 24: Iron Condors and Double Diagonals
    • The Iron Condor Trade
    • The Double Diagonal Trade
    • Comments
  • 25: An End-of-Year Tax Strategy
    • Tax Code Restrictions
    • Qualified Covered Calls
      • Basic Strategy
      • Follow-Up Variations
      • Comments

Section III  SpecialTopics

  • 26*: Day Trading an Index with Options
    • Comments
  • 27*: Delta-Neutral Trading
  • 28*: Theory of Maximum Pain
  • 29*: Implied Volatility and the Black-Scholes Formula
    • Historical Background
      • Derivation of the Black-Scholes Formula
      • Application of the Black-Scholes Formula
    • Implied Volatility
    • Applications of Implied Volatility
    • Comments
  • 30*: THE PUT-CALL PARITY RELATIONSHIP
    • Calls Cost More Than Puts
    • Applications of Put-Call Parity

?*Chapters with more advanced content are marked with an asterisk and can be passed over by beginners during the first reading of this book.


Preface

PREFACE

This book is intended for people who are just starting to learn about options as well as for those who want to advance their basic knowledge to a higher level. Much of the material in this book has previously appeared in a series of articles written for The Options Professor, a monthly online newsletter about options trading, published by Independent Investor, Inc., Bloomfield, Connecticut. Some of the material was originally developed by the author for a course on options pricing theory taught at Northwestern University, Evanston, Illinois.

Section I includes Chapters 1 through 9. These chapters contain fundamental information about options, mainly intended for the beginner. Those who have some experience with options may still find it worthwhile to skim through Section I to fill some gaps in their knowledge.

Section II includes Chapters 10 through 25. Each chapter in this section is devoted to a strategy that goes beyond the basic trade of owning a call or a put option. Some chapters are an advanced continuation of the strategy introduced in the preceding chapter. The advanced chapters are marked with an asterisk and can be passed over by beginners during their first reading of this book.

Section III includes Chapters 26 through 30. Each chapter in this section covers a topic that is intended for people with options experience who want to develop a broader background. All of these chapters are marked with an asterisk, so this whole section can be passed over by beginners during their first reading of this book.

The method of exposition in this book is primarily through example. The options concepts in each chapter are introduced anddiscussed in the form of example trades. Many of the examples are illustrated with risk graphs, which serve to reinforce the concepts of each strategy.

All of the trades presented in the book are taken from real situations, although the prices may have been altered slightly to simplify the presentation. In most of the examples, the real stock symbol has been replaced by the mythical XYZ or ZYX, so that the reader can focus on the discussion without any distraction related to an experience with the actual stock. In some examples, the real stock symbols have been used because it seemed particularly important to the discussion.


© Copyright Pearson Education. All rights reserved.

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