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Equity and Index Options Explained

Book Description

In 2007 over 400 million equity option contracts were traded but it is a volatile market, prices are ever changing with supply and demand — the only certainty is that they will change. With little knowledge or experience, an uninformed decision can quickly drain capital. This book explains equity options from absolute basics, assuming no prior knowledge of the subject. It shows traders starting out and already using the exchanges how to enhance their equity portfolio by using the whole range of investment opportunities and tools available. This will help investors to reduce their costs, enhance returns and manage price risk with certainty and precision.

Equity Options Explained is a practical guide to trading equity options, supported by Liffe (part of the NYSE Euronext exchange group).

Written by Bill Beagles, a well known, highly experienced trader and trainer, creating a unique combination in this area. Bill is still highly active in the markets, which brings a practical perspective to his training and the books.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Foreword
  6. Preface: Trading Language and Products
  7. 1: Option Basics
    1. EVERYDAY EXAMPLE: A CALL OPTION ON A HOUSE
    2. CALL OPTIONS: FORMAL DEFINITION
    3. EVERYDAY EXAMPLE: INSURANCE (A PUT OPTION ON HOME CONTENTS)
    4. PUT OPTIONS: FORMAL DEFINITION
  8. 2: Option Specifications
  9. 3: Exercise and Assignment
    1. THE PRACTICALITIES OF EXERCISE AND ASSIGNMENT
    2. SUMMARY OF CHAPTERS 1 , 2 AND 3
  10. 4: Option Uses
    1. USING OPTIONS TO HEDGE: AN INTUITIVE EXAMPLE
    2. USING OPTIONS TO SPECULATE
    3. USING OPTIONS TO SPECULATE: SUMMARY
  11. 5: Option Price and Value
    1. GLOSSARY
    2. EXAMPLES OF INTRINSIC VALUE
    3. EXAMPLES OF INTRINSIC VALUE AND TIME VALUE FROM TABLE 5.1
  12. 6: “Moneyness”
    1. SUMMARY OF CHAPTERS 5 and 6
  13. 7: Pricing Options
    1. GLOSSARY
    2. PRICING FACTOR 1: UNDERLYING VALUE
    3. PRICING FACTOR 2: TIME
    4. PRICING FACTOR 3: INTEREST RATES
    5. PRICING FACTOR 4: VOLATILITY
    6. SUMMARY OF CHAPTER 7
  14. 8: Skew
    1. SUMMARY OF CHAPTER 8
  15. 9: Option Pricing Revisited; the “Greeks”
    1. GREEK NUMBER 1: DELTA (Δ)
    2. GREEK NUMBER 2: THETA (Θ)
    3. GREEK NUMBER 3: VEGA (KAPPA)
    4. SUMMARY OF CHAPTER 9
  16. 10: Basic Option Strategy
    1. SUMMARY OF CHAPTER 10
  17. 11: Option Spreads
    1. GLOSSARY
  18. 12: The Collar (Fence)
  19. 13: Long Call Spreads (Bull Call Spreads)
    1. GLOSSARY
  20. 14: Long Put Spreads (Bear Put Spreads)
  21. 15: Short Call Spreads (Bear Call Spreads)
  22. 16: Short Put Spreads (Bull Put Spreads)
  23. 17: Selling Naked Puts versus Selling Put Spreads
  24. 18: Long Verticals versus Short Verticals
    1. SUMMARY OF CHAPTERS 13 TO 18
  25. 19: Long Straddles
  26. 20: Long Strangles
  27. 21: Short Straddles
  28. 22: The Iron Butterfly
    1. SHORT STRADDLES VERSUS SHORT IRON BUTTERFLIES
  29. 23: Short Strangles
  30. 24: The Iron Condor
    1. SUMMARY OF CHAPTERS 15–18 AND 22–24
  31. 25: Calendar Spreads
  32. 26: Long Call Calendars
  33. 27: Short Call Calendar Spreads
    1. SUMMARY OF CHAPTERS 25–27
  34. 28: Long Put Calendar Spreads
  35. 29: Short Put Calendar Spreads
    1. SUMMARY OF CHAPTERS 25–29
  36. 30: Diagonal Spreads
    1. SUMMARY OF CHAPTERS 11–30
  37. 31: Yield Enhancement
    1. SUMMARY OF CHAPTER 31
  38. 32: Gamma Trading
    1. SUMMARY OF CHAPTER 32
  39. 33: Resources
  40. 34: Summary
  41. Glossary
  42. Index