The Options Strategist

Copyright......Page 3
CONTENTS......Page 7
INTRODUCTION......Page 11
The Basics......Page 15
Puts and Calls......Page 16
The Other Side of the Option......Page 17
Vocabulary and Definitions......Page 18
Options Pricing: The Basics......Page 24
Buying Call Options......Page 25
Buying Put Options......Page 29
Writing Options: Covered and Uncovered......Page 33
Writing Covered Calls......Page 34
Writing Covered Puts......Page 37
The Building Blocks......Page 41
CHAPTER 2 BASIC INVESTMENT STRATEGIES......Page 43
Possible Outcomes......Page 44
Covered Writing Against Losing Positions......Page 45
The Naked Covered Writer......Page 46
The Buy/Write......Page 47
Static Return......Page 48
Expiration and Strike Price Selection......Page 49
In-the-Money Buy/Writes......Page 51
Stock Selection......Page 52
Rolling Out......Page 53
Rolling Up and Out......Page 55
Rolling Down......Page 56
Buying Protective Puts......Page 57
Strike and Expiration Decisions......Page 58
Long Cash/Long Call Strategy......Page 59
Buy Call/Start Saving Strategy......Page 61
Writing Puts Without and with Leverage......Page 63
Rolling Short Put Positions......Page 65
Other Rolling Strategies......Page 66
Systematic Option Writing......Page 67
Buying Calls......Page 69
Looking Beyond an Option’s Price......Page 70
An Option’s Sweet Spot......Page 77
Relaxing the Volatility Assumption......Page 78
An Option’s Profitability Boundary......Page 79
Choosing the Option’s Expiration Date......Page 80
When to Sell Long Calls......Page 81
Shorting Stocks......Page 82
Buying Puts: An Example......Page 83
Puts’ Profitability Boundary......Page 86
Choosing an Expiration Date......Page 87
Buying Out-of-the-Money Puts......Page 88
CHAPTER 4 OPTIONS 401: OPTION PRICING, VOLATILITY,AND A FIRST GREEK LETTER......Page 91
Stock Price......Page 92
Exercise Price......Page 93
Interest Rates and Dividends......Page 94
Time to Expiration......Page 96
Volatility......Page 100
Historical Volatility......Page 103
Implied Volatility......Page 105
Overvalued and Undervalued Options......Page 106
Real-World Volatilities......Page 107
The Greeks: Delta......Page 108
Delta and Complex Positions......Page 112
Impact of Volatility......Page 113
Early Assignment on Call Options......Page 114
Early Assignment on Put Options......Page 115
Covered Straddles and Combinations......Page 117
Covered Straddles......Page 118
Covered Combinations......Page 120
Testing for Suitability......Page 121
Setting Buying and Selling Targets......Page 122
Building a Stock Position......Page 123
Follow-up Action......Page 124
The Repair Strategy......Page 125
Where Options Come In......Page 126
Entering and Exiting the Position......Page 128
Exit Fear, Enter Greed......Page 129
Repairing High-Volatility Stocks......Page 130
Traditional Leverage: Borrowing......Page 132
Alternative Leverage: Remove Borrowing, Add Options......Page 133
Expanding the Strategy’s Range......Page 136
Final Variation......Page 138
More Later......Page 139
Bull Call Spreads......Page 141
Maximum Theoretical Value......Page 146
Spread Selection......Page 147
Entering Orders......Page 148
Bear Put Spreads......Page 149
Credit Spreads......Page 151
Bull Put Spreads......Page 152
Bear Call Spreads......Page 154
Buying Volatility......Page 155
Buying Straddles for Specific Events......Page 158
Strangles......Page 160
Buying Volatility: Call Back Spreads......Page 162
Comparison to Other Strategies......Page 164
Buying Volatility: Put Back Spreads......Page 165
Alternative Spreads......Page 167
In-the-Money Short Put......Page 168
Selling Volatility: Straddles and Front Spreads......Page 169
Put Front Spread......Page 172
Synthetics......Page 173
Choosing Strike Prices......Page 175
Short Synthetics......Page 176
Buying Calls to Hedge a Short Stock......Page 177
The Married Call......Page 178
Options on Exchange-Traded Funds......Page 181
Writing Puts to Go Long the Market......Page 182
Writing Covered Calls to Ease Out of a Position......Page 184
Index Options: Special Features......Page 185
Settlement Amount......Page 186
European versus American......Page 187
Broad and Narrow......Page 188
Parallel Universes......Page 189
Buying Protective Puts......Page 190
Buying Index Collars......Page 195
The Continental Divide......Page 197
Market Risk......Page 198
Buying Calls and Puts......Page 199
Spreading......Page 203
Butterflies and Other Inhabitants of the Menagerie......Page 206
Calendar Spreads......Page 211
CHAPTER 8 HEDGING CORPORATE STOCK AND OPTIONS......Page 215
Equity Collars......Page 216
Reality Interferes with Theory......Page 218
Other Potential Collar Buyers......Page 220
The Two Half-Collars: Buying Puts, Writing Calls......Page 221
Buying Partial Insurance......Page 222
What and When to Hedge......Page 226
If It Looks Like Stock .........Page 227
CHAPTER 9 OPTIONS 901: ADVANCED THEORETICAL NOTIONS......Page 231
Calculating Historical Volatility......Page 232
What Volatility Tells Us About Direction......Page 233
Do the Markets Have the Monday Morning Blues?......Page 234
Implied Volatility of Different Option Series......Page 236
The Market’s Implied Volatility......Page 237
VIX Levels......Page 238
VIX: Thermometer or Barometer......Page 240
The Greeks: Gamma......Page 241
Long Straddle/Short Straddle......Page 243
The Greeks: Theta......Page 244
The Greeks: Vega......Page 245
The Greeks: Rho......Page 246
The Relationship Among the Greeks......Page 247
Understanding the Black-Scholes Option Pricing Equation......Page 248
Option Pricing and Interest Rates......Page 250
Extra! Options Offered Below Intrinsic Value!......Page 253
Risk Management......Page 255
The “It’ll Never Go There” Attitude......Page 256
Leverage......Page 257
Earning Your Stripes......Page 259
Options and Taxes......Page 260
Covered Writing......Page 261
The Wash Sale Rule......Page 262
Finding Your Style......Page 263
INDEX......Page 265