You are previewing Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks, Second Edition.
O'Reilly logo
Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks, Second Edition

Book Description

Master option trading strategies one step at a time! Options for the Beginner and Beyond, Second Edition teaches options through brief, carefully-paced lessons on option concepts and trading strategies, crystal-clear definitions, and plenty of real trading examples. Every lesson builds on the one preceding it, explaining options in plain English, and guiding you all the way to advanced strategies covered in no other introductory tutorial. Drawing on his extensive experience teaching options trading to beginners -- and five years editing a leading options newsletter -- W. Edward Olmstead shows how to systematically control your risk, protect your investments, and maximize your profits. This new Second Edition integrates new coverage of weekly options throughout, and presents updated tax strategies every options trader needs to know. Olmstead shows you how to do all this, and much more:

  • Select options with high profit potential

  • Enter and exit trades

  • Choose brokers

  • Work with the Greeks, risk graphs, and LEAPs

  • Use vertical, event producing, and calendar spreads

  • Trade covered calls, straddles, strangles, married puts, and collars

  • Master these and other sophisticated strategies: naked options, stock substitutes, backspreads, butteryfly spreads, iron condors, and double diagonals

  • Implement effective end-of-year tax strategies

  • Day trade indexes with options

  • Use delta-neutral trading

  • Leverage the theory of maximum pain; implied volatility, and Black-Scholes

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication Page
  4. Contents
  5. Acknowledgments
  6. About the Author
  7. Preface
  8. Section I. Basic Concepts
    1. 1. Introduction
      1. Why Options?
      2. The Basic Concept of Options
      3. Major Differences Between Stocks and Options
        1. Leverage
        2. Time Limitation
        3. Price Movement
        4. Financial Risk
      4. A Detailed Explanation of Options
        1. The Option Contract
        2. The Call Option
          1. Buying a Call Option
          2. Selling a Call Option
        3. The Put Option
          1. Buying a Put Option
          2. Selling a Put Option
      5. Comments
    2. 2. Option Selection
      1. What Is a Cheap Option?
      2. Selecting a Call
      3. Overall Evaluation
      4. Selecting a Put
    3. 3. Entering and Exiting Option Trades
      1. Entering a Trade
      2. Exiting a Trade
    4. 4. The Greeks
      1. Delta
        1. Computing the Delta of a Call Option
        2. Application of the Delta
        3. Computing the Delta of a Put Option
      2. Theta
      3. Gamma
      4. Vega
      5. Rho
    5. 5. Risk Graphs
      1. Single Option Trade
      2. Multiple Option Trade
      3. Comments
    6. 6. LEAPS and Weekly Options
      1. LEAPS
        1. Dividends
      2. Weekly Options
    7. 7. Assignment Anxiety
      1. Comments
      2. Applications
    8. 8. Broker Selection
      1. Types of Brokers
      2. Commissions
      3. Trading Platform
      4. Margin and Trading Limitations
      5. Level 3 Trading
      6. Live Broker Assistance
      7. Comments
    9. 9. Miscellaneous Tips
      1. Time Is Money
      2. Trading with the Trend
      3. Risk Capital for Options Trading
      4. Tracking Trades
      5. Anticipating Events
      6. Real-Time Quotes
      7. Market Orders with Options
      8. Options Calculator
  9. Section II. Trading Strategies
    1. 10. Vertical Spreads
      1. Debit Vertical Spreads
        1. Bull Call Spread
        2. Bear Put Spread
        3. Comments
      2. Credit Vertical Spreads
        1. Bull Put Spread
        2. Bear Call Spread
      3. Comments
      4. Vertical Spreads with Weekly Options
    2. 11*. Event-Producing Credit Spreads
      1. Comments
    3. 12. Calendar Spreads
      1. The Rollout Maneuver
      2. Comments
      3. Calendar Spreads with Weekly Options
    4. 13*. Advanced Calendar Spreads
      1. Volatility Skew Trades
        1. Comments
      2. Ratio Calendar Spread Trades
        1. Comments
      3. Deep-in-the-Money LEAPS Put Calendar Spreads
      4. Diagonal Calendar Spread Trades
        1. Credit Diagonal Spread
        2. Debit Diagonal Spread
    5. 14. Covered Calls
      1. An Idealized Trade
      2. A Realistic Trade
      3. Covered Call Versus Naked Put
      4. Comments
      5. Covered Calls with Weekly Options
    6. 15. Straddles and Strangles
      1. The Straddle Trade
        1. Comments
      2. The Strangle Trade
      3. Straddles and Strangles with Weekly Options
    7. 16. Stock Repair and Stock Enhancement
      1. Stock Repair Strategy
        1. Comment
      2. Stock Enhancement Strategy
    8. 17. Married Puts
      1. Comments
      2. Married Puts with Weekly Options
    9. 18. Collars
      1. Comments
    10. 19*. Advanced Collars
      1. Comments
    11. 20. Naked Option Writing
      1. The Risk of Naked Option Writing
      2. Acquiring Stock with Naked Puts
      3. Comment
    12. 21. Stock Substitutes
      1. Matching the Stock Delta
      2. Synthetic Long Stock
        1. Comments
      3. Deep-in-the-Money Put
      4. Deep-in-the-Money Call
    13. 22. Backspreads
      1. Comments
      2. Backspreads with Weekly Options
    14. 23. Butterfly Spreads
      1. Standard Butterfly Trade
        1. Comments
      2. Butterfly Trade with Adjustments
        1. Comment
      3. Unbalanced Strikes Butterfly Trade
      4. Unbalanced Contracts Butterfly Trade
    15. 24. Iron Condors and Double Diagonals
      1. The Iron Condor Trade
      2. The Double Diagonal Trade
      3. Comments
      4. Iron Condors and Double Diagonals with Weekly Options
    16. 25. An End-of-Year Tax Strategy
      1. Tax Code Restrictions
      2. Qualified Covered Calls
      3. Basic Strategy
      4. Follow-Up Variations
      5. Comments
  10. Section III. Special Topics
    1. 26*. Day Trading an Index with Options
      1. Comments
    2. 27*. Delta-Neutral Trading
      1. Review of the Delta Concept
      2. A Delta-Neutral Portfolio
      3. Delta-Neutral Trading for a Profit
    3. 28*. Theory of Maximum Pain
    4. 29*. Implied Volatility and the Black-Scholes Formula
      1. Historical Background
        1. Derivation of the Black-Scholes Formula
        2. Application of the Black-Scholes Formula
      2. Implied Volatility
      3. Applications of Implied Volatility
      4. Comments
    5. 30*. The Put-Call Parity Relationship
      1. Calls Cost More Than Puts
      2. Applications of Put-Call Parity
  11. Index
  12. Financial Times Press