Introduction 1 Part I: The Framework Chapter 1: The Insurance Business 5 Chapter 2: Trade Selection 19 Chapter 3: Risk Management 31 Chapter 4: Trade Execution 43 Chapter 5: The Trading Plan 55 Chapter 6: Trading Infrastructure 63 Chapter 7: Learning Processes 73 Part II: Implementing the Business Chapter 8: Understanding Volatility 81 Chapter 9: Most Used Strategies 89 Chapter 10: Operating the Business: Putting Together TOMIC 1.0 from A to Z 121 Part III: Lessons from the Trading Floor Chapter 11: Lessons from the Trading Floor on Volatility 131 Chapter 12: Lessons from the Trading Floor on Risk Management 145 Chapter 13: Lessons from the Trading Floor on Trading and Execution 155 Chapter 14: Lessons from the Trading Floor on the Other Greeks 173 Chapter 15: The Beginning 191 Appendix A: Recommended Reading 195 Appendix B: Strategy Learning Sequence 199 Appendix C: OptionPit.com 201 Appendix D: Kite Spread 203 Index 205
In this book, a hedge fund manager and an option trading coach show you how to earn steady, reliable option income trading options by managing your trades and running your option portfolio as a real business following the fundamental principles of an "insurance company". Mark Sebastian (TheStreet.com, OptionPit.com) and hedge fund manager Dennis Chen (Smart Income Partners, Ltd.) explain why this particular business model offers such an attractive practical model for individual traders, and teaches the specific "how to"s you need to create and operate your personal option income portfolio this way. Sebastian and Chen begin by introducing their exclusive business model framework, identifying the option concepts most critical to long-term trading success, and presenting core income strategies based on selling rather than purchasing options. Next, they walk you through setting up your "business," offering a complete "operations manual" addressing each practical issue you'll face. The authors teach key lessons they've learned from their own experience -- including how to maintain trading discipline, manage volatility and risk, account for the "other" Greeks, and handle payments. Packed with real-world examples, this book reveals how professional money managers and hedge funds really manage their option trading operations -- and guides you step-by-step through setting up your portfolio and running your trades to earn the same high levels of income.
Dennis A. Chen is a hedge fund manager, investor, management advisor, and entrepreneur. He is the founder and Chief Investment Officer of Smart Income Partners, Ltd., a hedge fund specializing in generating income using index and equity options. Dennis has been investing and trading equities and options for many years. He has previously served as a management consultant at Bain & Company where he focused on financial services (banking and insurance). He was a principal at Diamond Technology Partners, Inc. As an entrepreneur, Dennis has purchased, improved, and sold several small businesses. He has experience in multiple industries, including banking, insurance, real estate, computer technology, Internet, publishing, advertising, construction, commodities, quick-service restaurants, and automotive. His broad business experience enables him to make better investment decisions at his hedge fund. Dennis earned his MBA from The Wharton School of Business. He also holds a Master's in Computer Science from Arizona State University and a Bachelor's degree in computer science from the University of Texas. Mark Sebastian is a former member of both the Chicago Board Options Exchange and the American Stock Exchange. He is the Chief Operating Officer of Option Pit Mentoring and Consulting, a Chicago-based option education firm. Sebastian has been published nationally on Yahoo! Finance and has been quoted in The Wall Street Journal, Reuters, Bloomberg, and on Jim Cramer's Mad Money show on CNBC. He has appeared on CNBC, Fox Business, and Bloomberg. He is an "all-star contributor" for The Street's Option Profits Team. Mark is also the Managing Editor for Expiring Monthly: The Option Traders Journal digital magazine focused exclusively on options trading. He has spoken for the CBOE, the ISE, CME, and VOLX; is a co-host on the popular Option Block podcast; and the Volatility Views podcast. Mark has a Bachelor's of Science in finance from Villanova University.