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The Complete Book of Option Spreads and Combinations

E-BookEPUB2 - DRM Adobe / EPUBE-Book
272 Seiten
Englisch
Wileyerschienen am08.10.20141. Auflage
Get a handle on option spreads to hike profit and squash loss
The Complete Book of Option Spreads and Combinations is the definitive educational resource and reference guide for using option spreads and other common sense option strategies. This useful guide shows readers how to select the right strategy for their market outlook and risk/reward comfort level by describing the inner workings of each strategy and how they are affected by underlying market movements, implied volatility, and time decay. Even more importantly, readers will understand where each strategy performs well, and the market conditions where each should be avoided. Once the proper strategy is selected, readers will learn how to identify the best options to use based on 'moneyness' and time to expiration. The companion website features tools including an option pricing tool and implied volatility calculator to help all traders implement these concepts effectively.
There are many different types of spreads, and while less risky than other option strategies in general, they are more complex, with more variables to monitor. This guide serves as a handbook for the trader wanting to exploit options to the greatest possible benefit.Generate monthly income by selling covered strangles
Use call spreads to recover from a losing stock position
Protect an existing stock position using put diagonals
Discover the best strategies for directional market plays

Option spreads are a great tool for traders who would rather be an option seller but who need to limit their risk. The Complete Book of Option Spreads and Combinations identifies those strategies that benefit from option erosion but that limit risk.
If managed properly, spreads can provide both novice and experienced investors with the potential for a large return while limiting risk. Electronic trading platforms and reduced brokerage commissions have increased option spread trading, which should occupy a spot in every savvy investor's toolkit. Comprehensive and authoritative, The Complete Book of Option Spreads and Combinations provides a valuable manual and lasting reference.mehr
Verfügbare Formate
BuchKartoniert, Paperback
EUR94,00
E-BookPDF2 - DRM Adobe / Adobe Ebook ReaderE-Book
EUR60,99
E-BookEPUB2 - DRM Adobe / EPUBE-Book
EUR60,99

Produkt

KlappentextGet a handle on option spreads to hike profit and squash loss
The Complete Book of Option Spreads and Combinations is the definitive educational resource and reference guide for using option spreads and other common sense option strategies. This useful guide shows readers how to select the right strategy for their market outlook and risk/reward comfort level by describing the inner workings of each strategy and how they are affected by underlying market movements, implied volatility, and time decay. Even more importantly, readers will understand where each strategy performs well, and the market conditions where each should be avoided. Once the proper strategy is selected, readers will learn how to identify the best options to use based on 'moneyness' and time to expiration. The companion website features tools including an option pricing tool and implied volatility calculator to help all traders implement these concepts effectively.
There are many different types of spreads, and while less risky than other option strategies in general, they are more complex, with more variables to monitor. This guide serves as a handbook for the trader wanting to exploit options to the greatest possible benefit.Generate monthly income by selling covered strangles
Use call spreads to recover from a losing stock position
Protect an existing stock position using put diagonals
Discover the best strategies for directional market plays

Option spreads are a great tool for traders who would rather be an option seller but who need to limit their risk. The Complete Book of Option Spreads and Combinations identifies those strategies that benefit from option erosion but that limit risk.
If managed properly, spreads can provide both novice and experienced investors with the potential for a large return while limiting risk. Electronic trading platforms and reduced brokerage commissions have increased option spread trading, which should occupy a spot in every savvy investor's toolkit. Comprehensive and authoritative, The Complete Book of Option Spreads and Combinations provides a valuable manual and lasting reference.
Details
Weitere ISBN/GTIN9781118806203
ProduktartE-Book
EinbandartE-Book
FormatEPUB
Format Hinweis2 - DRM Adobe / EPUB
FormatFormat mit automatischem Seitenumbruch (reflowable)
Verlag
Erscheinungsjahr2014
Erscheinungsdatum08.10.2014
Auflage1. Auflage
ReiheWiley Trading Series
Seiten272 Seiten
SpracheEnglisch
Dateigrösse7268 Kbytes
Artikel-Nr.3135456
Rubriken
Genre9201

Inhalt/Kritik

Leseprobe
CHAPTER 1
Not Just More or Less but Different

Options are about choice and the freedom to do something, exercise your option, or not do that something and let your option expire. An option is the right but not the obligation to do something; in our context, it s the right to buy or sell stock at a predetermined price before the option s expiration date. For this reason, options are obviously very different than ownership of the underlying stock. While it s true that if you own stock you always have the freedom, the option, of selling your stock, that s a pretty drastic choice; there s no middle ground. It s the choice inherent in ownership of an option, or the premium collected in selling an option, and the ability to enjoy the shades of gray between owning the underlying stock and not owning the underlying stock that make options such a useful tool. The owner of the option gets to make this choice but pays money for the privilege. The seller of the option doesn t get to make the choice, he s at the mercy of the option owner but he is paid for being at the mercy of the option buyer and he s often paid very handsomely.

This choice also means that options, when combined with other options in spreads and combinations and when combined with stock, result in risk/reward payoffs that are very different than stock alone or options alone can generate. If standard asset allocation between stocks, bonds, commodities, precious metals, and so on is diversification, then it s diversification in two dimensions. Allocation using different asset classes and option spreads or combinations is diversification in three dimensions.

As we see it, the principal function of options is to provide a significant expansion of the patterns of portfolio returns available to investors. Such expansions make investors better off . . .

Myron Scholes and Robert Merton

If you buy a share of stock and the price goes up by $1, then you ve made $1. If the price goes down by $1, then you ve lost $1. Pretty straightforward but not very nuanced either. By using options, particularly in a spread or combination, it s possible to create a trade structure that will make money if the stock goes up; it s possible to create a trade structure that will make money if the stock goes down; it s possible to create a trade structure that will make money if the stock doesn t move. It s possible to create trade structures that lose money if the stock moves a little but make money if the stock moves a lot. It s not just about more or less, with options the pattern of returns are fundamentally different.

But merely adding alternative structures isn t what really matters. What matters is that one of those payoff scenarios is likely to coincide with your outlook for the price action, or lack of price action, in the underlying stock. It s this ability to make money if the stock does what you believe it s going to do, regardless of what that belief is, even if it s the belief that the stock isn t going to go anywhere, that make spreads and combinations so useful.

While every investor or student of finance has heard of options, we ll focus on listed options on stocks, indexes and exchange-traded funds (ETFs). We won t discuss options to buy the real estate next door, nor will we discuss employee stock options, the sort of options given to employees as part of their compensation or as an incentive and that allow the employee to buy stock at a discount. Rather, we ll focus on the options nearly every investor can and probably should be using-listed options.
â  The Flavors : Calls and Puts

Listed stock options come in two flavors -the right to buy stock (a call option, often referred to simply as a call) and the right to sell stock (a put option, often referred to simply as a put). It s useful to remember the terms by thinking of the option to buy stock as the right to call it away from the existing owner. The right to sell stock is the right to put the stock back into the market.

The owner of a call option gets to choose, that is, he has the option, whether to exercise his right and buy the underlying stock at the exercise price before the option expires. The seller of the call option has to sell the stock at the exercise price if the owner of the option elects to exercise it. In that case, the seller of the call option is required to sell the stock at the exercise price regardless of how far above the exercise price the stock is currently trading. In exchange for being willing to do so, he will collect an option premium in the form of cash when he sells the option. This cash is his to keep no matter what.

The owner of a put option gets to choose whether to exercise his right and sell the underlying stock at the exercise price before the option expires. The seller of the put option has to buy the stock at the exercise price if the owner of the put option elects to exercise it. In that case, the seller of the put option is required to buy the stock at the exercise price regardless of how far below the exercise price the stock is currently trading. In exchange for being willing to do so, he will collect an option premium in the form of cash when he sells the options. This cash is his to keep no matter what.

One note: no one keeps track of whom you actually bought your option from or whom you sold it to. Rather, all options that share the underlying stock, expiration date, strike price, and type (call or put) are identical, regardless of which exchange they were executed on or which brokerage executed them, so when it s time for you to exercise your call option, the Options Clearing Corporation, the clearinghouse for option trades, will more or less randomly pick someone who is short one of those options to satisfy the duty to you.
â  The Expiration Date

For exchange-listed options, there are a number of expiration dates, usually by calendar month, to satisfy the hedging and speculation needs of all sorts of market participants, but for standard options, the expiration is fixed within the expiration month. The last trading day for these standard options is the third Friday of the month, and while the options technically expire the next day, the Saturday following that third Friday, for all intents and purposes the last day that matters is that last trading day. You can trade these options right up until the closing bell on that Friday and make the all-important decision about whether to exercise your option and buy (in the case of owning a call option) or sell (in the case of owning a put option) the underlying stock. We ll discuss this decision to exercise your option in greater detail when we define moneyness.

There are a few nonstandard expiration date regimes, and they can be useful. Many underlying stocks now have options with weekly expirations trading. Instead of expiring on the third Friday of the month, these will expire on the next Friday, or there might be two or more weekly expirations listed, each expiring on subsequent Fridays. The goal is to allow traders to take advantage of market events and catalysts such as earnings announcements; market-moving government announcements, such as unemployment and jobs data; or major corporate events, like a new product announcement or a Food and Drug Administration decision for a pharmaceutical company and to isolate that event or catalyst.

Some stocks, ETFs, and indexes also have quarterly expirations. These options expire on the last day of the calendar quarter and are intended for institutions that are judged by quarterly results.

As an example, Table 1.1 shows expiration dates for options that were recently trading on Microsoft Corporation (MSFT).

Table 1.1 MSFT Option Expirations
Expiration Month/Year Last Trading Date Option Expiration Date May May 17, 2013 May 18, 2013 May Weekly May 23, 2013 May 24, 2013 June June 21, 2013 May 22, 2013 July July 19, 2013 July 20, 2013 August August 16, 2013 August 17, 2013 October October 18, 2013 October 19, 2013 January 14 January 17, 2014 January 18, 2014 January 15 January 16, 2015 January 17, 2015
This sort of range of expiration dates is about normal for a major stock like Microsoft. While some other stocks will have slightly different expiration cycles, most will have options expiring in the current month, if the third Friday hasn t passed, or the next month and the following month. After those first couple of expirations, the expiration months will usually fall into a more or less quarterly pattern. For example, options on McDonald s Corporation (MCD) follow a September/December cycle rather than the August/October cycle that MSFT did. For longer-term options, most stocks will have listed options expiring next January and one or two Januarys after that. Note that the last...
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