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Options for Volatile Markets: Managing Volatility and Protecting Against Catastrophic Risk, Second Edition

Book Description

Practical option strategies for the new post-crisis financial market

Traditional buy-and-hold investing has been seriously challenged in the wake of the recent financial crisis. With economic and market uncertainty at a very high level, options are still the most effective tool available for managing volatility and downside risk, yet they remain widely underutilized by individuals and investment managers. In Options for Volatile Markets, Richard Lehman and Lawrence McMillan provide you with specific strategies to lower portfolio volatility, bulletproof your portfolio against any catastrophe, and tailor your investments to the precise level of risk you are comfortable with.

While the core strategy of this new edition remains covered call writing, the authors expand into more comprehensive option strategies that offer deeper downside protection or even allow investors to capitalize on market or individual stock volatility. In addition, they discuss new offerings like weekly expirations and options on ETFs. For investors who are looking to capitalize on global investment opportunities but are fearful of lurking "black swans", this book shows how ETFs and options can be utilized to construct portfolios that are continuously protected against unforeseen calamities.

  • A complete guide to the increased control and lowered risk covered call writing offers active investors and traders

  • Addresses the changing investment environment and how to use options to succeed within it

  • Explains how to use options with exchange-traded funds

Understanding options is now more important than ever, and with Options for Volatile Markets as your guide, you'll quickly learn how to use them to protect your portfolio as well as improve its overall performance.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Preface
  7. Introduction: The “New Normal” in Equity Investing
  8. Chapter 1: Option Basics
    1. What Are Options?
    2. Exercise and Assignment
    3. Positions
    4. How Options Are Traded
    5. Options in Your Account
  9. Chapter 2: Option Pricing and Valuation
    1. Option Premium
    2. Theoretical Value
    3. Time Value
    4. Volatility
    5. Interest Rates
    6. Dividends
    7. Calls versus Puts
    8. Option Skews and Anomalies
  10. Chapter 3: The Basics of Covered Call Writing
    1. Requirements for “Valid” Covered Writes
    2. Risk/Reward of a Covered Write
    3. Calculating Potential Returns
    4. Major Factors Affecting Call-Writing Returns
    5. Covered Writing as an Ongoing Strategy
    6. Summing Up Covered Writing
  11. Chapter 4: Implementing Covered Call Writing
    1. Follow-Up Actions
    2. Behavioral Issues
    3. Differing Approaches
    4. Selecting Calls to Write
    5. Risks
    6. Basic Tax Rules for Options
    7. Summing Up Implementation
  12. Chapter 5: Advanced Call-Writing Techniques
    1. Writing Calls on “Hot” Stocks
    2. Tax Deferral Strategies
    3. Covered Writing on Margin
    4. Covered Writing against Securities Other Than Stock
    5. Partial Writing, Mixed Writing, and Ratio Writing
    6. Put Writing
    7. Expiration Games
    8. Option-Stock Arbitrage
  13. Chapter 6: Basic Put Hedging
    1. Put Hedge Basics
    2. Advantages
    3. Disadvantages
    4. Behavioral Implications
    5. Put Hedge versus Covered Call
    6. Hedging against Catastrophic Risk
  14. Chapter 7: Advanced Hedging Strategies
    1. Put Hedge Follow-Ups
    2. Using Put Spreads to Hedge
    3. Collars
    4. Conclusions on Protective Option Strategies
  15. Chapter 8: Options on ETFs
    1. ETFs in a Nutshell
    2. ETF Options
    3. Covered Call Writing on ETFs
    4. Our Put Hedge and Collar Study on SPY
    5. Appendix: Partial List of ETFs with Listed Options
  16. Chapter 9: Volatility and Volatility Derivatives
    1. What Is Volatility?
    2. Using VIX as a Market Indicator
    3. Volatility Futures
    4. Variance Futures
    5. The Behavior of VIX Futures
    6. VIX Options
    7. VIX Option Strategies
    8. The Future
  17. Acknowledgments
  18. About the Authors
  19. Index