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Vertical Option Spreads: A Study of the 1.8 Standard Deviation Inflection Point, + Website

Book Description

Make trades on vertical options spreads with the precision of a laser beam

Vertical Options Spreads is a combination of a bona-fide academic research-based study and a complete method to trade credit and debit spreads, along with other complex option combination trades such as iron condors and butterflies. Here, the author has accumulated five years of daily data on the ETF, SPY and provided historical evidence of actual win rates at specific multiples of entry points, both in time and price level. For example, traders will be able to use the weekly options, pick a level of risk and return desired, learn how to place the trade, and then discover the actual percent return that the trade would have yielded.

This must-have resource includes the basics of option trading and contains references to many excellent works by other authors that explore more about the intricacies of option mechanics and trading. It is far more than an analysis of one specific asset, SPY, featuring a study of probability theory and how it has applied to trading over the past five years, including the highly volatile 2007 to 2009 time frame and the more "normal" 2010 to 2012 time period. The book offer a thorough understanding of how price movement, actual volatility, and implied volatility all provide a complex but workable web in which the informed trader can generate excellent returns. However, the trader must have the discipline to act within the confines of probability and the "law" of large numbers refusing to place trades based on gut feelings or hunches.

  • Offers high-probability based trading that uses the new weekly options

  • Contains handy interactive worksheets that allow traders to select their own risk/return with precision

  • Includes a website with daily and weekly information on the estimate of the actual standard deviation points on the price spectrum

Vertical Options Spreads offers traders a research-based guide for trading Standard & Poors 500 ETF, SPY using historic and estimated probabilities and returns that will give them an edge in the marketplace.

Table of Contents

  1. Cover
  2. Half Title
  3. Series Page
  4. Title Page
  5. Copyright Page
  6. Dedication
  7. Preface
    1. Free 180-day Trial of Crystal Ball Software
  8. Chapter 1: Introduction
    1. Sophisticated versus Casual Investing
    2. Hurricane Hits New York City
    3. Changing Course
    4. Steve Plays Craps
    5. Retirement Funds That Don't Grow
    6. Talking Heads
    7. What Is Covered
    8. Why This Book?
  9. Chapter 2: How to Be a Wizard
    1. Fundamentals
    2. Auditor's Opinion
    3. Statement of Cash Flows
    4. Income Statement
    5. Balance Sheet
    6. Footnotes and Conclusion
    7. Technical Indicators
    8. RSI
    9. Bollinger Bands
    10. Moving Average
    11. Patterns
    12. Geopolitical Events
  10. Chapter 3: Trading Platforms
    1. Online Brokerage Firms
    2. Analytical Capability
    3. Customer Service
    4. Real-Time or Delayed
    5. Speed of Order Execution
    6. Commissions and Fees
    7. Opening an Account and Summary
  11. Chapter 4: Vertical Spreads and the Iron Condor
    1. Why Use Vertical Spreads?
    2. Debit Spreads and Credit Spreads
    3. Bull Put Spread
    4. Bear Call Spread
    5. Iron Condor
    6. Why Use an Iron Condor If It Has Double-Sided Risk?
    7. You Can't Pick Market Direction
  12. Chapter 5: Structuring a Trade
    1. Structuring the Trade
    2. Closing a Trade or setting a Stop Loss
  13. Chapter 6: A Brief Visit with the Greeks
    1. Delta
    2. Gamma
    3. Rho
    4. Theta
    5. Vega
  14. Chapter 7: Risk and Psychology of Investing and Spread Trading
    1. An Introduction to Risk
    2. Overconfidence Bias
    3. Anchoring
    4. Mental Accounting
    5. Confirmation and Hindsight Bias
    6. Gambler's Fallacy
    7. Herd Behavior
    8. Availability Bias
    9. Prospect Theory: Loss Aversion Bias
    10. Conclusions on Risk and Behavioral Biases
  15. Chapter 8: Normal Distribution, Probability, and Modern Financial Theory
    1. Skewness and Kurtosis
    2. Modern Portfolio Theory
    3. The CAPM
    4. The Black-Scholes Model
    5. The Sombrero
  16. Chapter 9: The 1.8 Standard Deviation Solution
    1. Weekly Options
    2. Computing Standard Deviation per Day
    3. Actual Volatility (AV) Estimating
    4. The Amazing Spreadsheet and Historical Data on SPY
    5. Monte Carlo Simulation Using Oracle's Crystal Ball Software
    6. Introduction to Crystal Ball and Trading Spreadsheet Setup
    7. Crystal Ball Simulation and Report Interpretation
    8. Setting Up and a Brief Walkthrough of a Typical Weekly Trade
  17. Chapter 10: More Using Your Crystal Ball and Probability
    1. A Review of Crystal Ball Tools
    2. Credit Spreads
    3. Debit Spreads
    4. Iron Condors
    5. Plain Vanilla: Calls and Puts
    6. Straddles, Strangles, and Butterflies
    7. Optquest and Predictor
    8. Reflections on Probability, Monte Carlo Simulation, and Future Research
  18. Chapter 11: Conclusion
    1. The Weekly Trade Process
    2. Finis
  19. References
  20. About the Website
  21. Index