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Spread Trading: An Introduction to Trading Options in Nine Simple Steps

Book Description

A proven,easy-to-understandmethod for makingmoney with options

"If you've never invested in the stock market,this is the book for you. If you've been investingfor years . . . this is still the book for you. A fantastic introduction to options."

Jon "DOCTOR J" Najarian, Co-founder, OptionMonster.com

Spread trading-the practice of combining optiontrades and adjusting them over time-is being used successfullyby more and more professional traders. In this book, Greg Jensenshows nonprofessionals the tremendous advantages thissafe and profitable method offers.

In simple and precise terms, Spread Trading providesreaders with all the essential tools to begin trading options.It explains, in nine simple steps, the basics of puts, calls,strike prices, and spreads-assuming no prior knowledge onyour part-and tells how to profit no matter what the market does.The author has helped thousands of people achieve successimplementing this approach, and with Spread Trading, hecontinues to educate individuals on the benefits of trading thisway, showing you how to make money while reducing risk.

Building his lessons around the entertaining story oftwo ordinary guys figuring out how to trade options with each other,Jensen offers more than dry formulas-he relates the sense andthe intuition of trading options in a way that is simple,methodical, and easy to follow.

Table of Contents

  1. Title Page
  2. Dedication
  3. Copyright
  4. Acknowledgements
  5. About the Author
  6. Introduction
    1. QUESTIONS YOU MIGHT HAVE ON YOUR MIND
    2. ALL YOU NEED TO KNOW ABOUT THE STOCK MARKET BEFORE YOU READ THIS BOOK
  7. STEP ONE: Understanding the Long and Short of “Call” Options in the Market
    1. CHAPTER 1: Lon and Shorty
    2. CHAPTER 2: Let’s Make a Deal
    3. CHAPTER 3: Trading Rights and Obligations
    4. CHAPTER 4: Some Key Terms . . . that Almost Make Sense!
    5. CHAPTER 5: Strike One . . .
    6. CHAPTER 6: Strike Two . . .
    7. CHAPTER 7: Time Travel
    8. CHAPTER 8: R&R and Time Travel for Lon
      1. COST BASIS AND BREAKING EVEN
      2. REWARD
      3. RISK
      4. CALLING OUT SHORTY’S SHARES
    9. CHAPTER 9: R&R and Time Travel for Shorty
      1. REWARD
      2. RISK
    10. CHAPTER 10: How Lon and Shorty Came Out on Their Deal
  8. STEP TWO: Understanding the Long and Short of “Put” Options in the Market
    1. CHAPTER 11: Bulls, Bears, and Stags
    2. CHAPTER 12: The Put: Reaching a Different Trade of Rights and Obligations
    3. CHAPTER 13: Strike One . . .
    4. CHAPTER 14: Strike Two and Time Travel
    5. CHAPTER 15: R&R for Lon
      1. COST BASIS
      2. REWARD
      3. RISK
    6. CHAPTER 16: R&R for Shorty
      1. REWARD
      2. RISK
    7. CHAPTER 17: The Big Picture . . . So Far
    8. CHAPTER 18: How Lon and Shorty Came Out on Their Deal
  9. STEP THREE: Ramping Up the Possibilities
    1. CHAPTER 19: Did You Know that There Are a Lot of People Trading Options?
    2. CHAPTER 20: Did You Know You Can Actually Buy and Sell Your Options to Other People?
    3. CHAPTER 21: Did You Know You Can Vastly Increase Your Return on Investment?
    4. CHAPTER 22: Did You Know that You Never Want to “Make As Much Money As Possible”?
    5. CHAPTER 23: Best of All: Did You Know You Can Combine Option Instruments?
      1. TRENDS
      2. OPTION INSTRUMENTS: BASIC CHARACTERISTICS
  10. STEP FOUR: Getting a Few Basics in Place
    1. CHAPTER 24: More Time Travel
    2. CHAPTER 25: What Is An Option Worth?
    3. CHAPTER 26: Strike Three
    4. CHAPTER 27: Choosing Stocks
      1. FIVE KEY AREAS OF PERFORMANCE
      2. INTRINSIC VALUE: IS THE COMPANY PRICED RIGHT?
      3. LET SOMEONE ELSE CRUNCH THE NUMBERS FOR YOU
      4. ADDITIONAL FACTORS IN CHOOSING STOCKS
    5. CHAPTER 28: Reading the Tea Leaves (1)
      1. THE OVERALL MARKET
      2. READING MARKET SENTIMENT
    6. CHAPTER 29: Reading the Tea Leaves (2): Stock Trends
      1. TECHNICAL INDICATORS
      2. SUPPORT AND RESISTANCE
    7. CHAPTER 30: Getting the Final Pieces in Place
      1. SOME MECHANICS AND TERMINOLOGY IN OPTION TRADING
      2. ASSIGNMENT
      3. SIX WAYS THE DEAL COULD END
      4. EXPIRATION
      5. OPTION HIEROGLYPHICS
    8. CHAPTER 31: Fun, Fun, Fun!
      1. TRACKING THE PERFORMANCE OF CALLS
      2. TRACKING THE PERFORMANCE OF PUTS
  11. STEP FIVE: Understanding Two Basic Option Trades
    1. CHAPTER 32: Insuring Your Investment
      1. COST BASIS
      2. REWARD
      3. RISK
      4. WHEN TO USE A PROTECTIVE PUT
      5. PRIMARY EXIT
    2. CHAPTER 33: Shorty Heaven: Selling Your Way to Profits
      1. COST BASIS AND RISK
      2. REWARD
      3. WHEN TO USE A COVERED CALL
      4. PRIMARY EXITS
  12. STEP SIX: Moving from Option Trading to Spread Trading
    1. CHAPTER 34: Trading in Surround Sound: The Fundamental Spread Trade
      1. COST BASIS
      2. RISK
      3. REWARD
      4. “SPREAD” TRADE
      5. BALANCE OF RISK AND REWARD
      6. WHEN TO USE A COLLAR TRADE
      7. PRIMARY EXIT
    2. CHAPTER 35: The Two Basic Ways to Make Money in Spread Trading
      1. THE RELATIONSHIP BETWEEN THE COLLAR AND OTHER SPREAD TRADES
  13. STEP SEVEN: Understanding Bullish Spread Trades
    1. CHAPTER 36: The Bull Call
      1. NET DEBIT AND RISK
      2. REWARD
      3. HOW PROFIT IS GENERATED
    2. CHAPTER 37: The Bull Put
      1. NET CREDIT AND REWARD
      2. RISK
    3. CHAPTER 38: Bull vs. Bull
  14. STEP EIGHT: Understanding Bearish Spread Trades
    1. CHAPTER 39: The Bear Call
      1. NET CREDIT AND REWARD
      2. RISK
    2. CHAPTER 40: The Bear Put
      1. NET DEBIT AND RISK
      2. REWARD
    3. CHAPTER 41: Bear vs. Bear
  15. STEP NINE: Getting Started
    1. CHAPTER 42: Lifting the Fog
      1. RISK AND REWARD IN THE DEBIT SPREAD TRADES
      2. RISK AND REWARD IN THE CREDIT SPREAD TRADES
    2. CHAPTER 43: The Launch
      1. FOUR ELEMENTS OF PREPARATION
      2. ATTITUDE
      3. WHAT WE WISH
  16. APPENDIX: Answers to End-of-Chapter Reviews
  17. Index