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Getting Started in Advanced Options, Illustrated Edition

ISBN: 978-1-118-34363-0
300 pages
December 2013
Getting Started in Advanced Options, Illustrated Edition (1118343638) cover image

Description

An illustrated, easy-to-read guide to advanced options trading

In Getting Started in Advanced Options, Illustrated Edition, bestselling author Michael C. Thomsett uses nontechnical, easy-to-follow language to demystify the options markets, distinguishing the imagined risks from the real ones and arming investors with the facts they need to make more informed decisions. This illustrated edition includes colourful illustrations, including charts and graphs that make complex subject matter easy to understand. Fully updated to cover the latest changes in the markets, the book introduces advanced strategies and concepts that every successful trader needs. It covers how options can reduce risk, spread strategies, hedges and straddles, swing trading with options, options on futures and indexes, synthetic positions based on options, risks and taxes, choosing stocks for options trading, and more.

  • An ideal illustrated companion volume to Michael C. Thomsett's Getting Started in Advanced Options
  • Updated to include the latest changes and newest information on the markets
  • Loaded with easy-to-understand graphs, charts, and other illustrations

This new illustrated addition to the Getting Started In series makes advanced options trading easy to understand with clear examples, handy illustrations, and plain-English explanations.

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Table of Contents

Acknowledgments vii

Element Key ix

Introduction xi

Chapter 1: Strategies in Volatile Markets: Uncertainty as an Advantage 1

Avoiding 10 Common Mistakes 3

Modifying Your Risk Tolerance 10

The Nature of Market Volatility 13

Market Volatility Risk 14

Options in the Volatile Environment 19

Chapter 2: Combinations and Spreads: Creative Risk Management 31

Overview of Advanced Strategies 34

Vertical Spread Strategies 41

Horizontal and Diagonal Spread Strategies 52

Altering Spread Patterns 57

Chapter 3: Hedges and Straddles: More Creativity 73

The Two Types of Hedges 73

Hedging Option Positions 77

Straddle Strategies 83

Theory and Practice of Combined Techniques 89

Chapter 4: Options for Specialized Trading: Leveraging the Technical Approach 95

Swing-Trading Basics 97

The Setup Signal 100

Testing the Theory 103

A Strategic View of Options for Swing Trading 107

Options Used for Other Trading Strategies 110

Swing- and Day-Trading Advanced Strategies 111

Chapter 5: Options on Futures: Leveraging Your Leverage 117

Important Distinctions 118

Regulatory Differences 124

Chapter 6: Trading Index Options: Playing the Broader Market 131

Advantages to Trading Index Options 133

Exercise and Expiration Rules 135

Index Option Strategies 137

Structured Index Options 140

Chapter 7: Synthetic Positions: Tracking the Stock 147

Synthetic Put (Protected Short Sale) 149

Synthetic Long Call (Insurance Put or Married Put) 151

Synthetic Long Stock 152

Synthetic Short Stock 155

Split Strike Strategy (Bullish) 157

Split Strike Strategy (Bearish) 159

Collars 162

Synthetic Straddles 169

Chapter 8: Risk: Rules of the Game 177

Identifying the Range of Risk 178

Evaluating Your Risk Tolerance 188

Chapter 9: Taxes: The Wild Card of Options Trading 195

Qualified Covered Calls—Special Rules 200

Looking to the Future 206

Chapter 10: Choosing Stocks: Finding the Right Ingredients 213

Developing an Action Plan 217

Selecting Stocks for Call Writing 220

Averaging Your Cost 225

Analyzing Stocks 230

Applying Analysis to Calls—the “Greeks” 250

Acting on Good Information 258

Glossary 267

Recommended Reading 285

About the Author 287

Index 289

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Author Information

Michael C. Thomsetthas written numerous books on investing and trading. He regularly contributes to Seeking Alpha, Global Risk Community, the Chicago Board Options Exchange (CBOE) website, and other investing websites, and he writes articles for the AAII Journal and NAIC's Better Investing. He also teaches five classes at the prestigious New York Institute of Finance.

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