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How to Price and Trade Options: Identify, Analyze, and Execute the Best Trade Probabilities, + Website

Book Description

Select and execute the best trades—and reduce risk

Rather than teaching options from a financial perspective, How to Price and Trade Options: Identify, Analyze, and Execute the Best Trade Probabilities goes back to the Nobel Prize-winning Black-Scholes model. Written by well-known options expert Al Sherbin, it looks at the basis for probability theory in option trading and explains how to put the odds in your favor when trading options. Inside, you'll discover how anyone can "operate their own casino" if they know how through proper option strategies. Plus, a supplemental website includes videos that walk you through various probability scenarios, pre-formatted spreadsheets, and code.

All investors should have a portion of their portfolio set aside for option trades. Not only do options provide great opportunities for leveraged plays, they can also help you earn larger profits with a smaller amount of cash outlay. With the help of this book, traders, active investors, and self-directed investors of all stripes will learn how simple it can be to deploy probability-based trading strategies.

  • Teaches both defined and undefined risk strategies

  • Utilizes simple cost basis reduction strategies to enhance investment returns

  • Draws on unique research studies

  • Discusses volatility to include both historical (realized) and implied volatility: the interplay between the two is a key piece of information overlooked by option traders

  • If you're a trader of any level and want to make the best trades possible, this book has you covered.

    Table of Contents

    1. Introduction
    2. CHAPTER 1 Why Trade Options?
      1. Strategic without Being Directional
      2. A Word about Leverage
      3. Options Are a Decaying Asset
      4. Insurer or Insured?
      5. Probability of Making Money
      6. Market Efficiency
      7. Tired, Worn-Out Metaphors
    3. CHAPTER 2 What to Look for in a Broker
      1. Brokerages versus Banks
      2. Depth of a Broker’s Pockets
      3. Trading Risk Management
      4. Learning from Recent Events
      5. Account Types
      6. Commissions
      7. Interest Rates
      8. Stock Borrow and Loan
      9. Trading Platforms
      10. Conclusion
    4. CHAPTER 3 Building the Foundation
      1. Option Pricing Models
      2. Option Pricing Model Inputs
      3. Historical Data as Input into the Implied Volatility of an Underlying
      4. Implied Volatility as a Predictor of Stock Movement and Probabilities
      5. The Distribution Curve
      6. Breakout Stocks
      7. Actual versus Historical Distribution Curves
    5. CHAPTER 4 Trade Probabilities: What to Look For
      1. The Results
      2. How to Calculate Option Probabilities
    6. CHAPTER 5 Choosing Your Trades
      1. Choosing Your Underlying
      2. Making an Assumption
    7. CHAPTER 6 Choosing a Strategy
      1. Defined Risk Trades
      2. Credit Spreads
      3. Debit Spreads
      4. Butterfly
      5. Iron Condor
      6. Calendar Spreads
      7. Undefined Risk Trades
      8. The Straddle
      9. The Strangle
      10. Short Naked Puts
      11. Ratio Spreads and Back Spreads
      12. What Time to Expiration Should My Trades Have?
      13. Trading Earnings Announcements
    8. CHAPTER 7 Exiting Trades
      1. The Variables
      2. The Kelly Criterion
      3. Morning Routine
      4. To Log Your Trades or Not to Log Your Trades
    9. CHAPTER 8 Executing Your Trades
      1. Order Types
    10. CHAPTER 9 Portfolio Management
      1. Two Types of Risk
      2. The Goal: Diversification—Minimizing Unique Risk
      3. The Methods: Correlation and Number of Positions
      4. Identifying and Mitigating Systematic Risk
      5. Trade Sizing
      6. Early Exercise
    11. Conclusion
    12. About the Website
    13. About the Author
    14. Index
    15. EULA