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The Complete Book of Option Spreads and Combinations: Strategies for Income Generation, Directional Moves, and Risk Reduction, + Website

Book Description

Get a handle on option spreads to hike profit and squash loss

The Complete Book of Option Spreads and Combinations is the definitive educational resource and reference guide for using option spreads and other common sense option strategies. This useful guide shows readers how to select the right strategy for their market outlook and risk/reward comfort level by describing the inner workings of each strategy and how they are affected by underlying market movements, implied volatility, and time decay. Even more importantly, readers will understand where each strategy performs well, and the market conditions where each should be avoided. Once the proper strategy is selected, readers will learn how to identify the best options to use based on "moneyness" and time to expiration. The companion website features tools including an option pricing tool and implied volatility calculator to help all traders implement these concepts effectively.

There are many different types of spreads, and while less risky than other option strategies in general, they are more complex, with more variables to monitor. This guide serves as a handbook for the trader wanting to exploit options to the greatest possible benefit.

  • Generate monthly income by selling covered strangles

  • Use call spreads to recover from a losing stock position

  • Protect an existing stock position using put diagonals

  • Discover the best strategies for directional market plays

  • Option spreads are a great tool for traders who would rather be an option seller but who need to limit their risk. The Complete Book of Option Spreads and Combinations identifies those strategies that benefit from option erosion but that limit risk.

    If managed properly, spreads can provide both novice and experienced investors with the potential for a large return while limiting risk. Electronic trading platforms and reduced brokerage commissions have increased option spread trading, which should occupy a spot in every savvy investor's toolkit. Comprehensive and authoritative, The Complete Book of Option Spreads and Combinations provides a valuable manual and lasting reference.

    Table of Contents

    1. Foreword
    2. Preface
      1. The Spreads and Combinations
    3. Chapter 1: Not Just More or Less but Different
      1. The “Flavors”: Calls and Puts
      2. The Expiration Date
      3. The Strike Price
      4. An Option Corresponds to 100 Shares of Stock
      5. Defining an Option
      6. Moneyness
      7. What We Mean by Spread and Combination
      8. A Final Thought
    4. Chapter 2: Just a Little Math
      1. The Option Price
      2. Volatility and the Volatility Implied by the Option Price
      3. Option Erosion
      4. Option Price Sensitivities
      5. Sensitivity to the Passage of Time
      6. Sensitivity to the Price of the Underlying Stock
      7. Changes in Volatility
      8. Other Sensitivities
    5. Chapter 3: Vertical Spreads
      1. Buying and Selling Vertical Spreads
      2. Vertical Spread Maximum and Minimum Values
      3. Naming
      4. Moneyness and Vertical Spreads
      5. Bullish and Bearish Vertical Spreads
      6. Selling a Call Vertical Spread
      7. Breakeven Points
      8. The Necessary Price Action
      9. Vertical Spreads and Your Market Outlook
      10. Asymmetry of Risk and Reward for Vertical Spreads
      11. Option Delta and Likelihood
      12. Vertical Spread Value Prior to Expiration
      13. The Other Greeks
      14. The Best Measure of Vertical Spread Cost
      15. In-the-Money Vertical Spreads
    6. Chapter 4: Covered Calls
      1. Profitability
      2. Covered Calls and Downside Protection—Not As Much As We’d Like
      3. Using Covered Calls to “Create” Dividends
      4. Having Your Shares Called Away
      5. Don’t Fear Assignment
      6. Stock Covered Vertical Call Spread
    7. Chapter 5: Covered Puts
      1. The Regret Point
      2. Market Outlook
      3. Out-of-the-Money Covered Puts
      4. In-the-Money Covered Puts
      5. At-the-Money or Nearly At-the-Money
      6. Covered Put versus Covered Call
    8. Chapter 6: Calendar Spreads
      1. Call Calendar Spreads
      2. Selling Calendar Spreads
      3. Directionality
      4. Catalysts
      5. The Super Calendar
    9. Chapter 7: Straddles
      1. The Short Straddle
      2. Likelihoods
      3. Selling Covered Straddles
    10. Chapter 8: Strangles
      1. Selling Strangles
      2. Selling Covered Strangles
    11. Chapter 9: Collars
      1. Wider Collars
      2. In-the-Money Collars
      3. Potential Outcomes
      4. A Zero-Cost Collar
      5. Skew
      6. How a Collar Is Similar to Other Spreads and Combinations
      7. Put Spread Collar
      8. Call Spread Collar
    12. Chapter 10: Risk Reversal
      1. Likelihoods
      2. How Skew Helps a Risk Reversal
      3. Call Spread Risk Reversal
    13. Chapter 11: Butterflies
      1. Buying and Selling Butterflies—The Terminology
      2. Put Butterflies
      3. Butterflies Prior to Expiration
      4. Butterflies and Your Market Expectations
      5. Broken Butterflies
    14. Chapter 12: Condors and Iron Condors
      1. Selling a Condor
      2. The Bid/Ask Spread and Condor Spreads
      3. Iron Condor
      4. Directional Condors
    15. Chapter 13: Conversion/Reversal
      1. Reversal
      2. Dividends
      3. Pin Risk
    16. Chapter 14: Ratio Spreads and Back Spreads
      1. Vertical Spreads, Butterflies, and Ratio Spreads
      2. Call Ratio Spreads
      3. Call Ratio Spreads for Stock Repair
      4. Back Spreads
      5. Super Back Spreads
    17. Chapter 15: Other Spreads and Combinations
      1. Married Put
      2. Diagonal Spread
      3. Iron Butterfly
      4. Christmas Tree
      5. Box Spread
      6. Jelly Roll
      7. Stupid
      8. Guts
      9. Other Potential Spreads and Combinations
    18. About the Website
    19. About the Author
    20. Index
    21. End User License Agreement