Table of Contents
Foreword xiii
Todd ‘‘Bubba’’ Horwitz Preface xv
Acknowledgments xvii
Chapter 1 Market Psychology: The Mind-Set of a Trader 1
The Herd Mentality: Bubbles 2
The South Sea Bubble 1711–1721: Trade, War, and Government Collusion 2
The Cotton Panic of 1837: Land, Commodities, and Government 4
The Panic of 1893: Railroads Have No Upper Limit 6
September 11, 2001: Price Can Never Go Up Again 7
The Commodity Bubble of 2008: Price Can Never Go Down Again 8
Bitcoin 2009 to Present: Crypto-Currency Meets Greed 10
Lessons to Be Learned 11
Chapter 1 Quiz 12
Chapter 2 Modern Markets 15
Equity Markets 15
Liquidity 16
Flow of Funds 17
Futures Markets: Origins 18
Calculating Future Contract Values 18
Tick Size 19
Margin 20
Stock Index Futures 20
Index Futures versus Stock 21
Forex: Currencies 22
Options 22
Summary 23
Chapter 2 Quiz 23
Chapter 3 Technical versus Fundamental Price Analysis 27
Summary 29
Chapter 3 Quiz 29
Chapter 4 Phases of the Market 31
Congestion 31
Breakout to the Trend 33
Blowoff 35
Summary 37
Chapter 4 Quiz 37
Chapter 5 The Relationship of Time and Price 41
Summary 47
Chapter 5 Quiz 48
Chapter 6 Introduction to Options 51
Basic Option Glossary 51
Working Option Vocabulary 56
Summary 58
Chapter 6 Quiz 58
Chapter 7 The Option Model 63
Games of Chance 63
Air in the Balloon 66
Summary 67
Chapter 7 Quiz 67
Chapter 8 The Option Chain 71
Summary 80
Chapter 8 Quiz 80
Chapter 9 Option Trading Strategies 83
Why Selling Naked Options is Always Wrong! 83
Suitable Option Trades 85
The Credit Spread 91
Summary 99
Chapter 9 Quiz 100
Chapter 10 Why Trade Weekly Options? 105
Buying a Call or a Put Outright 110
Summary 112
Chapter 10 Quiz 113
Chapter 11 Midterm Review 115
Psychology 116
Liquidity 116
Market Pricing 116
Phases of the Market 117
Relationship of Time and Price 117
Option Vocabulary 117
Summary 118
Test for Chapters 1–10 119
Chapter 12 Standard Deviation—The Mathematics of the Price Cycle 127
Summary 131
Chapter 12 Quiz 131
Chapter 13 Trading in a Congestion Phase of the Market 133
Trade One: Buying an Outright Option 136
Trade Two: Credit Spreads 139
Trade Three: Risk Reversals 143
Trade Four: Backspread (1 × 2 for Even) 146
Summary 150
Chapter 13 Quiz 151
Chapter 14 Trading in a Trending Phase of the Market 155
Trade One: Buying an Outright Option 156
Trade Two: Credit Spreads 160
Trade Three: Risk Reversals 163
Trade Four: Backspread (1 × 2 for Even) 165
Summary 167
Chapter 14 Quiz 168
Chapter 15 Trading in the Blowoff Phase of the Market 173
Trade One: Buying an Outright Option 175
Trade Two: Credit Spreads 177
Trade Three: Risk Reversals 180
Trade Four: Backspread (1 × 2 for Even) 182
Summary 183
Chapter 15 Quiz 183
Chapter 16 Selecting a Portfolio to Trade 187
Liquidity 188
Volatility 190
Diversification by Product 190
Diversification by Dollar Risk 191
Summary 192
Chapter 16 Quiz 193
Chapter 17 Managing Your Equity 197
Risk of Ruin 197
Risk Capital 198
Volatility 199
Win Rate 199
Starting Capital 200
Summary 200
Chapter 17 Quiz 201
Chapter 18 Organizing Trades and FAQs 203
Step One: Observing Your Portfolio 203
Step Two: Observing the Major Trend and Making a Trade 204
Step Three: The Amount of Equity Needed to Trade Each Strategy 204
Frequently Asked Questions 205
Summary 207
Final Exam: 100 Questions 207
Appendix I: Answers to the Chapter Quizzes 222
Appendix II: Days until Expiration Straddle Values 235
Glossary of Option Terms 237
About the Author 247
Index 249
