Options Trading For Dummies (For Dummies (Business & Personal Finance))

Title Page
Copyright Page
Table of Contents
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1 Getting Started with Options Trading
Chapter 1 Options Trading and You, the Individual Investor
Rewiring Your Thinking
Preparing to Trade: Take a Pre-Trading Flight Check
Understanding Options
Getting the complete picture
Knowing option essentials
Trying different strategies before deploying them in real time
Putting options in their place
Differentiating between Option Styles
Using options to limit your risk
Applying options to sector investing
Using Options in Challenging Markets
Reducing your directional bias and making money in flat markets
Controlling your emotions
Chapter 2 Introducing Options
Understanding Option Contracts
Tuning in to option basics
Comparing options to other securities
Valuing Options
Knowing your rights and obligations as an options trader
Identifying useful terms of endearment
Making Sense of Options Mechanics
Identifying options
Rotating with the expiration cycle
Making a decision: Expiration time is key
Detailing your rights
Creating Option Contracts out of Thin Air
Opening and closing positions
Selling an option you don’t own
Keeping Some Tips in Mind
Chapter 3 Trading Places: Where the Action Happens
Identifying the U.S. Options Exchanges
Navigating the Markets
Executing trades
Naming the option market participants
Eyeing transactions and orders unique to options
Making sure you know these trading rules
Weighing Option Costs and Benefits
Recognizing option risks
Identifying costs unique to options
Valuing options benefits
Grasping Key Option Pricing Factors
Introducing option Greeks
Connecting past movement to the future
Chapter 4 Identifying Option Risks and Rewards
Understanding Your Trading Risks
Risking money with stocks
Calculating option risks
Reaping Your Rewards
Benefiting from stocks
Breaking even with options
Profiling Risk and Reward
Profiling stock trades with risk graphs
Profiling option trades with risk graphs
Combining option positions
Considering the worst-case scenario
Part 2 Evaluating Markets, Sectors, and Strategies
Chapter 5 Looking Closer Inside the Algo-Controlled Market
Considering a Few Words about Select Macro Factors
Assessing the Market’s (the Algos’) Bias
Judging the strength of a move
(Psycho)-analyzing the market
Watching Call and Put Extremes
Understanding put/call ratios
Using Volatility to Measure Fear
Measuring volatility
Recognizing impact from changing volatility
Spelling fear the Wall Street way: V-I-X
Chapter 6 Sector Analysis: Technical and Fundamental
Getting Technical with Charts
Understanding chart basics
Adjusting your time horizon for the best view
Visualizing supply and demand
Identifying Relatively Strong Sectors
Relative ratios
Rate of change indicator
Using Sector Volatility Tools
Displaying volatility with indicators
Analyzing volatility with Bollinger Bands
Projecting Prices for Trading
Support and resistance
Trends
Channels
Price retracements and extensions
Projections and probabilities
Chapter 7 Practicing Before You Swing
Monitoring Option Greek Changes
Tracking premium measures
Changing volatility and option prices
Making Sense of Paper Trading
Eyeing the pros and cons to paper trading
Implementing electronic paper trades
Using Trading Systems
Knowing what you’re getting
Performing a backtest
Adding risk management to a backtest
Mastering Your Strategies
Setting the right pace
Achieving mastery through longevity
Chapter 8 Designing a Killer Trading Plan
Developing a Reliable Plan
Managing Your Costs
Optimizing Order Execution
Understanding option orders
Entering a new position
Executing a quality trade
Exiting an existing position
Part 3 What Every Trader Needs to Know about Options
Chapter 9 Getting to Know Different Option Styles
Delving Deeper into Index Options
Getting to the nitty-gritty of indexes
Capitalizing on an index with options
Watching Out for Style Risk
American-style options
European-style options
Considering the exceptions
Exercising Your Options, American Style
Knowing the nuts and bolts
What you see is what you get
To exercise or not, that is the question
Exercising Your Options the Euro Way
Tracking index settlement (the SET)
Cashing in with exercise
Satisfying Option Obligations
American-style stock options
Expiring options
European-style options
Breaking It Down: American-Style Index Options
Exercising rights
Meeting obligations
Chapter 10 Protecting Your Portfolio with Options
Putting Protection on Long Stock
Combining puts with long stock
Weighing protection cost versus time
Limiting Short Stock Risk with Calls
Protecting a short stock position
Further reducing short stock risk
Hedging Your Bets with Options
Protecting a portfolio . . . partially
Protecting a portfolio . . . completely
Avoiding Adjusted Option Risk
Justifying option adjustments
Adjusting from adjustments
Chapter 11 Increasing Profit Potential and Decreasing Risk
Leveraging Assets to Reduce Risk
Determining your total dollars at risk
Relying on market timing
Combining Options to Reduce Risk
Spreading the risk with a debit trade
Spreading the risk with a credit trade
Chapter 12 Combination Strategies: Spreads and Other Wild Things
Combining Options with Stocks
Creating covered positions
Covering the covered call position
Reducing protected stock costs
Varying Vertical Spreads
Changing your vertical spread risk profile
Spreading time with calendars
Chapter 13 Understanding ETFs, Options, and Other Useful Tricks
Exploring the Exchange-Traded Fund
Comparing ETFs to indexes
Distinguishing ETF and index options
Reducing Portfolio Volatility with ETFs
Revisiting volatility
Investing with ETFs
Tilting Your Portfolio with Sector ETFs
Adding sector ETFs to tilt your portfolio
Selecting the right strategy
Part 4 Advanced Strategies for Options Traders
Chapter 14 Making Money without Worrying About the Market’s Direction
Limiting Directional Risk
Capitalizing on a big move — A straddle
Reducing straddle risk and reward — A strangle
Examining a Neutral View versus a Neutral Position
Identifying neutral positions
Calculating delta for combination positions
Trading with Delta
Monitoring two key Greeks
Creating a delta-neutral straddle
Understanding Trade Adjustments
Deciding when to adjust a trade
Deciding how to adjust a trade
Chapter 15 Letting Volatility Show You the Way to Trading Opportunities
Analyzing Implied Volatility Levels
It’s all relative but not overly scientific
When options are skewed
Understanding Ratio Spreads
Reviewing ratio spread risk profiles
Identifying best conditions for ratio spreads
Deciding your strategy
Using Ratio Backspreads
Defining ratio backspreads
Spotting best conditions for ratio backspreads
Chapter 16 Trading Profitably When Markets Move Sideways
Identifying Winning Positions in Sideways Markets
Managing existing positions
Identifying other option strategies for sideways moves
Understanding Butterfly Positions
Defining the butterfly
Digging deeper into butterfly risk
Creating an iron butterfly
Understanding Condor Positions
Defining a condor spread
Recognizing condor risks
Part 5 The Part of Tens
Chapter 17 Ten Top Option Strategies
Married Put
Collar
Long Put Trader
LEAPS Call Investor
Diagonal Spread
Bear Call Credit Spread
Straddle
Call Ratio Backspread
Put Ratio Backspread
Long Put Butterfly
Chapter 18 Ten Do’s and Don’ts in Options Trading
Do Focus on Managing Risk
Don’t Avoid Losses
Do Trade with Discipline
Don’t Expect to Remove Your Emotions
Do Have a Plan
Do Be Patient
Don’t Suffer from Analysis Paralysis
Do Take Responsibility for Your Results
Don’t Stop Learning
Do Love the Game
Index
EULA