Options
The Essential Guide for Getting Started in Derivatives Trading, Tenth Edition
1st Edition
Published on 23. July 2018
Book
Paperback/Softback
XVIII, 438 pages
978-1-5474-1614-1 (ISBN)
Description
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
More details
Edition
10th edition
Language
English
Place of publication
Boston
United States
Target group
Professional and scholarly
US School Grade: College Graduate Student
Product notice
Klappenbroschur
Illustrations
100 s/w Tabellen, 100 Abbildungen
100 ill., 100 tbl.
Dimensions
Height: 240 mm
Width: 170 mm
Thickness: 25 mm
Weight
768 gr
ISBN-13
978-1-5474-1614-1 (9781547416141)
Schweitzer Classification
Other editions
Additional editions
Michael C. Thomsett
Options
The Essential Guide for Getting Started in Derivatives Trading, Tenth Edition
E-Book
07/2018
1st Edition
De Gruyter
€54.95
Available for download
Michael C. Thomsett
Options
The Essential Guide for Getting Started in Derivatives Trading, Tenth Edition
E-Book
07/2018
1st Edition
De Gruyter
€54.95
Available for download
Person
Michael C. Thomsett
, Business Writer
Content
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
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