Important insights into effective option strategies
In The Complete Guide to Option Strategies, top-performing commodity trading advisor Michael Mullaney explains how to successfully employ a variety of option strategies, from the most risky--selling naked puts and calls--to more conservative strategies using covered positions. The author covers everything from options on stocks, exchange-traded funds, stock indexes, and stock index futures to essential information on risk management, option "Greeks," and order placement. The book provides numerous tables and graphs to benefit beginning and experienced traders. Written by a CTA who has successfully employed various options strategies to generate market-beating returns, The Complete Guide to Option Strategies will be an important addition to any trader's library.
Michael D. Mullaney (Jacksonville, FL) is a high-ranking commodity trading advisor who specializes in option selling strategies.
Table of Contents:
Preface xv
Acknowledgments xx
Part One Learning the Fundamentals 1
Chapter 1 Getting Ready to Trade 3
Why Trade Options? 3
Developing a Game Plan 4
What Is an Option? 8
Defining Key Terms 12
Final Thoughts 17
Chapter 2 Option Fundamentals 19
Overview 19
Opening and Closing Positions 19
Option Buying 20
Option Selling 22
Spreads 26
Bid/Ask Spread 26
Option Chain 27
Final Thoughts 28
Chapter 3 What Determines an Option’s Price? 31
Overview 31
Factors Affecting Option Pricing 33
Forecasting Option Prices 41
Final Thoughts 43
Chapter 4 Tools of the Trade — Greeks 45
Overview: Greek Basics 45
Position Greeks 54
Converting an Option Chain to Greeks 55
More on Delta 56
Final Thoughts 62
Chapter 5 Buying versus Selling 65
Overview 65
Comparing Long and Short Options 66
Option Buying 69
Option Selling 70
Bullish versus Bearish 73
Learning How to Roll 73
Final Thoughts 76
Chapter 6 Understanding Spread Terminology 77
What Is a Spread? 77
Spread Buying versus Selling 78
Spread Strategy Summary 83
Final Thoughts 86
Part Two The Four Basic Option Strategies 87
Chapter 7 Long Call 91
Overview 91
Strategy Examples 93
Beyond the Basics 104
Final Thoughts 107
Chapter 8 Long Put 109
Overview 109
Strategy Examples 111
Beyond the Basics 122
Final Thoughts 124
Chapter 9 Short Call 125
Overview 125
Strategy Examples 127
Beyond the Basics 139
Final Thoughts 140
Chapter 10 Short Put 141
Overview 141
Strategy Examples 143
Beyond the Basics 154
Final Thoughts 157
Part Three Spread Strategies 159
Chapter 11 Vertical Spread 161
Overview 161
Strategy Examples 163
Beyond the Basics 173
Final Thoughts 177
Chapter 12 Iron Condor 179
Overview 179
Strategy Examples 180
Beyond the Basics 188
Final Thoughts 189
Chapter 13 Unbalanced Spreads 191
Overview 191
Strategy Examples 192
Beyond the Basics 201
Final Thoughts 202
Chapter 14 Straddle and Strangle 205
Overview 205
Strategy Examples 207
Beyond the Basics 218
Final Thoughts 222
Chapter 15 Butterfly Spread 223
Overview 223
Strategy Examples 226
Beyond the Basics 238
Final Thoughts 240
Chapter 16 Condor Spread 243
Overview 243
Strategy Examples 246
Beyond the Basics 258
Final Thoughts 260
Chapter 17 Calendar Spread 263
Overview 263
Strategy Examples 266
Beyond the Basics 279
Final Thoughts 283
Chapter 18 Diagonal Spread 285
Overview 285
Strategy Examples 288
Beyond the Basics 298
Final Thoughts 299
Chapter 19 Covered Call 301
Overview 301
Strategy Example 302
Beyond the Basics 306
Final Thoughts 310
Chapter 20 Combination 313
Overview 313
Strategy Examples 316
Beyond the Basics 321
Final Thoughts 324
Chapter 21 Collar 327
Overview 327
Strategy Example 329
Beyond the Basics 332
Final Thoughts 334
Chapter 22 Covered Combination 335
Overview 335
Strategy Example 338
Beyond the Basics 341
Final Thoughts 342
Part Four Comparing Underlying Instruments 343
Chapter 23 Comparing Stocks, ETFs, Indexes, and Stock Index Futures 345
Overview 345
Size of Instrument 346
Exercise and Assignment 347
Margin 348
Commission and Bid/Ask 349
Taxes 351
Final Thoughts 351
Chapter 24 ETF Options 353
Overview 353
What Is an ETF? 353
ETF Options 354
Final Thoughts 362
Chapter 25 Stock Index Options 363
Overview 363
What Is a Stock Index? 364
Index Options 364
Index Volatility Skew 370
Index Time Decay 370
Final Thoughts 371
Chapter 26 Stock Index Futures Options 373
Overview 373
What Is a Futures Contract? 375
Stock Index Futures Option 379
Bonus Section 385
Final Thoughts 389
Part Five Advanced Topics 391
Chapter 27 Assessing Volatility 393
Overview 393
Comparison of Implied Volatilities 398
How to Compare Volatility 399
Response to Changing Conditions 401
Market Volatility Gauges 406
Volatility Skew 407
Delta-Neutral Volatility Trading 414
Consider Trading Volatility Index Options 415
Final Thoughts 416
Chapter 28 Exercise and Assignment 417
Overview 417
American-Style Exercise 420
European-Style Exercise 421
Cash Settlement 422
Automatic Exercise 423
Spread Risks 425
Likelihood of Exercise 427
Assignment Risk 429
Exercise and Assignment Procedures 430
Final Thoughts 431
Chapter 29 Risk Management 433
Run It Like a Business 433
Controlling Risk 438
Final Thoughts 448
Chapter 30 Margin 449
Overview 449
Stock, ETF, Index, and Futures Margin 450
Comparing Margin 459
Margin Planning 460
Interest 462
Cash Accounts and IRAs 462
Final Thoughts 464
Chapter 31 Placing an Order 465
Overview 465
Types of Option Orders 466
Strategy: The Multistep Order 471
Bid/Ask Spread 472
Commissions 475
Trading Platform 476
Clearing of Trades 476
Final Thoughts 476
Chapter 32 Taxation of Options 479
General Rules 479
Option Taxation 480
Tax Reduction for Broad-Based Index and Futures Options 482
Internal Revenue Service Circular 230 Notice 485
Final Thoughts 485
Appendix A Strategies at a Glance—ETFs 487
Bullish ETF Strategies 488
Bearish ETF Strategies 492
Trading outside a Range 497
Trading inside a Range 499
Appendix B Strategies at a Glance—Indexes 503
Bullish Index Strategies 503
Bearish Index Strategies 506
Trading outside a Range 508
Trading inside a Range 510
Appendix C Strategies at a Glance—Stock Index Futures 515
Bullish Stock Index Futures Strategies 515
Bearish Stock Index Futures Strategies 519
Trading outside a Range 523
Trading inside a Range 525
Glossary 529
About the Author 543
Index 545
