Your Options Handbook
The Practical Reference and Strategy Guide to Trading Options
Published on 8. March 2011
432 pages
978-1-118-04118-5 (ISBN)
Description
A comprehensive yet simplified guide to the complex world ofoptions investing and risk management
Before trading derivatives, one needs to understand the secretsand mechanics behind the options market. Your Options Handbook: ThePractical Reference and Strategy Guide to Trading Options offers astraightforward, practical explanation of the options marketplace,including its origins, the mechanics of the market, and how toprofit from trading options.
* Walks you through the stock and option markets from aprofessional's perspective, but uses plain language and simpleanalogies
* Discusses different trading strategies based upon whether one'sopinion of the market is bullish, bearish, or neutral
* Details market players, useful tips, and trading psychology,and explains how options are priced
Options are a versatile trading instrument that typically costless and can have lower risk than stocks. They also offer investorsa unique edge and lucrative opportunities that are not available tostock only traders. Your Options Handbook helps investors fullyunderstand the options market, allowing them to enter the sectorwith greater ease.
Before trading derivatives, one needs to understand the secretsand mechanics behind the options market. Your Options Handbook: ThePractical Reference and Strategy Guide to Trading Options offers astraightforward, practical explanation of the options marketplace,including its origins, the mechanics of the market, and how toprofit from trading options.
* Walks you through the stock and option markets from aprofessional's perspective, but uses plain language and simpleanalogies
* Discusses different trading strategies based upon whether one'sopinion of the market is bullish, bearish, or neutral
* Details market players, useful tips, and trading psychology,and explains how options are priced
Options are a versatile trading instrument that typically costless and can have lower risk than stocks. They also offer investorsa unique edge and lucrative opportunities that are not available tostock only traders. Your Options Handbook helps investors fullyunderstand the options market, allowing them to enter the sectorwith greater ease.
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Persons
Jared A. Levy got his start trading as an options marketmaker and specialist in the pits of the Philadelphia and AmericanStock Exchanges in the '90s. Now as an exclusive CNBC contributor,he offers his commentary to the world as part of CNBC's Fast Moneyteam and appears on several programs throughout the network. Jaredis also featured and quoted in numerous industry publications bothonline and in print. He has been featured on Bloomberg, Fox, andseveral other radio and TV networks over the years. In 2006, he wonan Emmy for his daily video, "Trader Cast." More recently, heserved as the Senior Derivatives Specialist for PEAK6 Investments,L.P., and is currently an editor for Taipan Publishing Group.
Through his many seminars and courses, Jared Levy has educatedtens of thousands of investors on how to successfully andconsistently trade and invest for a living, while keeping risk low.He teaches a practical, straightforward approach to investing thatinvolves analyzing equities, derivatives, and the markets as awhole, as well as both simple and complex strategies and the use ofdiverse instruments.
Through his many seminars and courses, Jared Levy has educatedtens of thousands of investors on how to successfully andconsistently trade and invest for a living, while keeping risk low.He teaches a practical, straightforward approach to investing thatinvolves analyzing equities, derivatives, and the markets as awhole, as well as both simple and complex strategies and the use ofdiverse instruments.
Content
Foreword xi
Preface xv
Acknowledgments xxvii
CHAPTER 1 Market Basics and Market Mechanics: What Is GoingOn and How Does It All Work? 1
The Markets 1
Sectors and Industries 9
ETFs--A Different Kind of Investment 12
Final Thoughts 16
CHAPTER 2 Data That Moves the Markets: The First Step in YourAnalysis 17
Data and Sentiment 18
Economists, Predictions, and Indicators 18
Economic Indicators 21
Key Indicators to Watch 27
Final Thoughts 43
CHAPTER 3 Fundamental and Technical Stock Analysis and Tools:The Second Step in Your Analysis 45
Introduction to Fundamental Analysis 46
Digesting the News 57
Cheap versus Value 61
Mergers and Acquisitions for the Everyday Options Trader 64
The Wisdom (or Lack Thereof) of Crowds 65
Trading Tactics and Technical Analysis 67
Plans of Attack 93
New Trader Tips 101
Top 10 Things Professionals Do That the Average Retail TraderDoesn't 104
Final Thoughts 106
CHAPTER 4 Options Basics: Techniques and Fundamentals toMaster Before Applying Any Options Strategy 107
The Oracle of Omaha Did It, Why Can't I? 111
The Basics 114
Trading Options--Order Types 122
Options Expiration in Detail 126
Exercise and Assignment 128
When Should You Exercise an Option Early? 132
What Is Triple Witching? (Or Quadruple Witching) 134
Final Thoughts 137
CHAPTER 5 The Greeks: The Forces That InfluenceOptions' Prices 139
Delta 139
Final Thoughts 156
CHAPTER 6 Strategy: The Basic Options Trades 159
Basic Single Options Strategies 160
The Long Call 160
Covered Call (Buy-Write) 171
Buy-Write versus Covered Call 175
Long Put 181
Basic Stock and Options Spread 195
Final Thoughts 208
CHAPTER 7 Strategy: The Basic Spread Trades 209
Vertical Spreads in Depth 209
The Four Basic Vertical Spreads--Basic Characteristics andBehavior 214
Credit Spreads versus Debit Spreads 216
Credit Vertical Spreads 219
Debit Vertical Spreads 236
Buying a Put Spread (Bear Put Spread) 237
Buying a Call Spread (Bull Call Spread) 242
Market Direction Neutral Spread Strategies 257
Final Thoughts 271
CHAPTER 8 Strategy: The Advanced Option Spreads 273
Market Neutral, Volatility, and Earnings Spread Strategies273
Butterflies versus Condors 281
Iron Spreads 285
Iron Butterfly versus Iron Condor 286
Final Thoughts 309
CHAPTER 9 Advanced Concepts 311
Put-Call Parity, Interest Rates, Dividends, and Forwards 312
Synthetics and More on Put-Call Parity 316
Final Thoughts 336
CHAPTER 10 A Revolutionary Approach to the Mind Games of theMarkets: Understand Why You Need Emotions to Trade Well337
Trading Is Like Weather Forecasting 338
What Is Psych Cap? 345
Strategies and Tactics for Large Psych Cap Balances 352
About the Contributor 359
CHAPTER 11 Turning Your Trading into a Business 361
Learning the Dollar 362
Education 362
The Formative Process 363
Tips and Formulas for Budgetary Success 364
Setting Up a Legal Entity 366
Guidelines, Indicators, and Birds of Prey 371
Final Thoughts 381
About the Contributor 381
Notes 383
About the Author 389
Index 391
Preface xv
Acknowledgments xxvii
CHAPTER 1 Market Basics and Market Mechanics: What Is GoingOn and How Does It All Work? 1
The Markets 1
Sectors and Industries 9
ETFs--A Different Kind of Investment 12
Final Thoughts 16
CHAPTER 2 Data That Moves the Markets: The First Step in YourAnalysis 17
Data and Sentiment 18
Economists, Predictions, and Indicators 18
Economic Indicators 21
Key Indicators to Watch 27
Final Thoughts 43
CHAPTER 3 Fundamental and Technical Stock Analysis and Tools:The Second Step in Your Analysis 45
Introduction to Fundamental Analysis 46
Digesting the News 57
Cheap versus Value 61
Mergers and Acquisitions for the Everyday Options Trader 64
The Wisdom (or Lack Thereof) of Crowds 65
Trading Tactics and Technical Analysis 67
Plans of Attack 93
New Trader Tips 101
Top 10 Things Professionals Do That the Average Retail TraderDoesn't 104
Final Thoughts 106
CHAPTER 4 Options Basics: Techniques and Fundamentals toMaster Before Applying Any Options Strategy 107
The Oracle of Omaha Did It, Why Can't I? 111
The Basics 114
Trading Options--Order Types 122
Options Expiration in Detail 126
Exercise and Assignment 128
When Should You Exercise an Option Early? 132
What Is Triple Witching? (Or Quadruple Witching) 134
Final Thoughts 137
CHAPTER 5 The Greeks: The Forces That InfluenceOptions' Prices 139
Delta 139
Final Thoughts 156
CHAPTER 6 Strategy: The Basic Options Trades 159
Basic Single Options Strategies 160
The Long Call 160
Covered Call (Buy-Write) 171
Buy-Write versus Covered Call 175
Long Put 181
Basic Stock and Options Spread 195
Final Thoughts 208
CHAPTER 7 Strategy: The Basic Spread Trades 209
Vertical Spreads in Depth 209
The Four Basic Vertical Spreads--Basic Characteristics andBehavior 214
Credit Spreads versus Debit Spreads 216
Credit Vertical Spreads 219
Debit Vertical Spreads 236
Buying a Put Spread (Bear Put Spread) 237
Buying a Call Spread (Bull Call Spread) 242
Market Direction Neutral Spread Strategies 257
Final Thoughts 271
CHAPTER 8 Strategy: The Advanced Option Spreads 273
Market Neutral, Volatility, and Earnings Spread Strategies273
Butterflies versus Condors 281
Iron Spreads 285
Iron Butterfly versus Iron Condor 286
Final Thoughts 309
CHAPTER 9 Advanced Concepts 311
Put-Call Parity, Interest Rates, Dividends, and Forwards 312
Synthetics and More on Put-Call Parity 316
Final Thoughts 336
CHAPTER 10 A Revolutionary Approach to the Mind Games of theMarkets: Understand Why You Need Emotions to Trade Well337
Trading Is Like Weather Forecasting 338
What Is Psych Cap? 345
Strategies and Tactics for Large Psych Cap Balances 352
About the Contributor 359
CHAPTER 11 Turning Your Trading into a Business 361
Learning the Dollar 362
Education 362
The Formative Process 363
Tips and Formulas for Budgetary Success 364
Setting Up a Legal Entity 366
Guidelines, Indicators, and Birds of Prey 371
Final Thoughts 381
About the Contributor 381
Notes 383
About the Author 389
Index 391
