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Options for the Beginner and Beyond
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Table of Contents

Contents
Acknowledgments xii
About the Author xiii
Preface xiv
Section I Basic Concepts 1
Chapter 1 Introduction 3
Why Options? 3
The Basic Concept of Options 4
Major Differences Between Stocks and Options 4
A Detailed Explanation of Options 7
Comments 15
Chapter 2 Option Selection 17
What Is a Cheap Option? 17
Selecting a Call 20
Overall Evaluation 24
Selecting a Put 24
Chapter 3 Entering and Exiting Option Trades 25
Entering a Trade 27
Exiting a Trade 28
Chapter 4 The Greeks 31
Delta 31
Theta 35
Gamma 36
Vega 37
Rho 38
Chapter 5 Risk Graphs 39
Single Option Trade 40
Multiple Option Trade 42
Comments 44
Chapter 6 LEAPS and Weekly Options 45
LEAPS 46
Weekly Options 50
Chapter 7 Assignment Anxiety 53
Comments 55
Applications 56
Chapter 8 Broker Selection 59
Types of Brokers 59
Commissions 60
Trading Platform 61
Margin and Trading Limitations 62
Level 3 Trading 63
Live Broker Assistance 63
Comments 64
Chapter 9 Miscellaneous Tips 65
Time Is Money 65
Trading with the Trend 66
Risk Capital for Options Trading 66
Tracking Trades 67
Anticipating Events 68
Real-Time Quotes 68
Market Orders with Options 69
Options Calculator 69
Section II Trading Strategies 71
Chapter 10 Vertical Spreads 73
Debit Vertical Spreads 74
Credit Vertical Spreads 77
Comments 80
Vertical Spreads with Weekly Options 80
Chapter 11* Event-Producing Credit Spreads 81
Comments 87
Chapter 12 Calendar Spreads 89
The Rollout Maneuver 93
Comments 94
Calendar Spreads with Weekly Options 95
Chapter 13* Advanced Calendar Spreads 97
Volatility Skew Trades 97
Ratio Calendar Spread Trades 101
Deep-in-the-Money LEAPS Put Calendar Spreads 103
Diagonal Calendar Spread Trades 106
Chapter 14 Covered Calls 111
An Idealized Trade 112
A Realistic Trade 112
Covered Call Versus Naked Put 114
Comments 117
Covered Calls with Weekly Options 118
Chapter 15 Straddles and Strangles 121
The Straddle Trade 121
The Strangle Trade 127
Straddles and Strangles with Weekly Options 128
Chapter 16 Stock Repair and Stock Enhancement 131
Stock Repair Strategy 132
Stock Enhancement Strategy 135
Chapter 17 Married Puts 139
Comments 143
Married Puts with Weekly Options 143
Chapter 18 Collars 145
Comments 152
Chapter 19* Advanced Collars 155
Comments 162
Chapter 20 Naked Option Writing 163
The Risk of Naked Option Writing 164
Acquiring Stock with Naked Puts 168
Comment 169
Chapter 21 Stock Substitutes 171
Matching the Stock Delta 171
Synthetic Long Stock 171
Deep-in-the-Money Put 174
Deep-in-the-Money Call 176
Chapter 22 Backspreads 179
Comments 185
Backspreads with Weekly Options 185
Chapter 23 Butterfly Spreads 189
Standard Butterfly Trade 189
Butterfly Trade with Adjustments 192
Unbalanced Strikes Butterfly Trade 195
Unbalanced Contracts Butterfly Trade 197
Chapter 24 Iron Condors and Double Diagonals 201
The Iron Condor Trade 201
The Double Diagonal Trade 204
Comments 206
Iron Condors and Double Diagonals with Weekly Options 207
Chapter 25 An End-of-Year Tax Strategy 209
Tax Code Restrictions 209
Qualified Covered Calls 210
Basic Strategy 211
Follow-Up Variations 214
Comments 215
Section III Special Topics 217
Chapter 26* Day Trading an Index with Options 219
Comments 222
Chapter 27* Delta-Neutral Trading 223
Review of the Delta Concept 223
A Delta-Neutral Portfolio 225
Delta-Neutral Trading for a Profit 227
Chapter 28* Theory of Maximum Pain 229
Chapter 29* Implied Volatility and the Black-Scholes Formula 233
Historical Background 233
Implied Volatility 236
Applications of Implied Volatility 237
Comments 237
Chapter 30* The Put-Call Parity Relationship 239
Calls Cost More Than Puts 239
Applications of Put-Call Parity 242
Index 243

Promotional Information

Master option trading strategies with Options for the Beginner and Beyond, Second Edition, the new edition of Dr. W. Edward Olmstead's worldwide best seller!

Olmstead has kept all the features that made his first edition so popular: brief, carefully-paced lessons on options concepts and trading strategies, crystal-clear definitions, and plenty of real trading examples. This edition integrates new coverage of weekly options throughout, and presents updated tax strategies every trader needs to know. Every lesson builds on the one preceding it, explaining options in plain English from start to finish.

Olmstead offers step-by-step coverage of controlling risk and protecting your investments, and introduces advanced strategies other introductory books ignore. Drawing on years of experience teaching options (and five years editing a leading options newsletter), he guides you through:

  • Basic Concepts: selecting options, entering/exiting trades, choosing brokers, working with Greeks, risk graphs, LEAPs, and more
  • Trading Strategies: Vertical, event producing, and calendar spreads; covered calls, straddles, strangles, married puts, collars, naked options, stock substitutes, backspreads, butterfly spreads, iron condors, and double diagonals; end-of-year tax strategies, and more
  • Special Topics: day trading indexes with options; delta-neutral trades; theory of maximum pain; implied volatility/Black-Scholes; and put-call parity relationships

About the Author

W. Edward Olmstead has a B.S. from Rice University and a Ph.D from Northwestern University, where he is currently Professor of Applied Mathematics in the McCormick School of Engineering and Applied Sciences. He has received several prestigious awards for teaching excellence including an endowed chair. His teaching activities include courses that cover both the theory of options pricing and practical strategies for trading options.

In the world of finance, Dr. Olmstead has more than fifteen years of experience in the trading of options. He holds a FINRA Series 65 license along with considerable experience as an options consultant. He has written various articles on options for the online media.

Dr. Olmstead was Editor of The Options Professor newsletter published by Independent Investor, Inc. during 2003-07. His consulting activities included service as an options analyst for Spear Capital Management. He also worked on an ultra short-term trading concept for a member firm of the Chicago Mercantile Exchange. Since 2010, he has utilized a proprietary options strategy in the management of funds for a group of private clients.

For more information about Dr. Olmstead's current options interests, go to www.olmsteadoptions.com.

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