When used correctly, options can greatly enhance your profits. The leverage they provide allows small accounts to trade like big ones, without the normally associated risks. And, in times of financial turmoil, options can keep you from incurring catastrophic losses. There are many ways in which options can both protect your portfolio and help you profit—but in order to take advantage of these opportunities, you have to learn how to properly use options in your investment endeavors. As the cofounder and former chief options strategist for the Options University, and now as founder of ION Options, author Ron Ianieri is one of the most well-respected, and well-informed, individuals in this field. Over the course of his successful twenty-plus-year career in the options market, he has trained many professional traders, as well as numerous active investors. Now, with Options Theory and Trading, he shares his extensive experience with you. Based on a proven option-trading course created by Ianieri, which follows a logical step-by-step progression, this book opens with an in-depth explanation of option terms and theory in Part One—because learning the language and understanding the theory is the foundation upon which successful option strategies are built. Continuing along these lines, Ianieri takes the time to explore the unique risks and rewards of call and put options, and introduces you to the option pricing model, the "Greeks," and synthetic positions. In Part Two, Ianieri moves on to basic trading strategies involving stock and options, including the covered call/buy-write strategy, the covered put/sell-write strategy, the protective put strategy, the synthetic put/protective call strategy, and lastly, the collar strategy. In addition to this, you'll also discover the role of the "lean" in options trading and how to "roll" your position to establish a stream of income. While Ianieri demonstrates how well options function in unison with a stock position—enhancing potential gains, providing profit protection, and limiting the risk of the entire investment—he also examines how they can be even more effective when traded against each other. In Part Three, you'll gain an in-depth understanding of how to use vertical, diagonal, and time spreads in this way, and discover how straddles and strangles—which both feature the use of options in unison with one other—can help you achieve strong premium collection. Rounding out this detailed discussion of options is a close look at combination strategies. Part Four of Options Theory and Trading takes you through fully hedged strategies known as the Butterfly and the Condor, and offers practical advice on how and when to use them. In an environment of increasing volatility, there's great risk of market corrections endangering the capital of individual investors around the world. What you need to achieve long-term success in today's market is the right guidance. With Options Theory and Trading, you'll quickly discover how to use options to increase your portfolio's profit potential and reduce the risks you'll inevitably face.

Table of Contents:
Preface xi Acknowledgments xv Part I Understanding Terms and Theory 1 Chapter 1 Options Basics and Terms 3 Calls and Puts 4 Classes and Series 5 In the Money, Out of the Money, and At the Money 7 Premium and Time Decay 9 Intrinsic versus Extrinsic Value 9 Volatility 12 Chapter 2 Calls and Puts 15 Call Options 15 Put Options 16 Chapter 3 Option Theory 19 Option Pricing Models 20 Fundamentals of Pricing Models 21 Types of Pricing Models 25 Inputs of the Options Pricing Model 32 Outputs of the Pricing Model 39 Chapter 4 Option Theory and the Greeks 41 Delta 42 Gamma 52 Vega 57 Theta 68 Second-Tier Greeks 80 Chapter 5 Synthetic Positions 85 Defining Synthetics 86 Synthetic Stock 88 Synthetic Call 96 Synthetic Put 106 Part II Basic Strategies 117 Chapter 6 Introduction to Trading Strategies 119 Directional Trading Strategies 119 In-the-Money, Out-of-the-Money, and At-the-Money Options 123 Leverage and Risk 128 Chapter 7 Covered Call/Buy-Write Strategy 131 Foundations of the Strategy 131 Performance in Different Scenarios 135 Lean 138 Rolling the Position 139 Examples 141 Covered Call/Buy-Write Synopsis 146 Chapter 8 The Covered Put/Sell-Write Strategy 147 Reviewing Selling Short 147 Foundations of the Strategy 148 Performance in Different Scenarios 151 Lean 154 Rolling the Position 157 Examples 157 Covered Put/Sell-Write Synopsis 163 Chapter 9 The Protective Put Strategy 165 Foundations of the Strategy 165 Performance in Different Scenarios 166 Lean 168 When to Use the Protective Put Strategy 170 Examples 172 Protective Put Synopsis 177 Chapter 10 The Synthetic Put/Protective Call Strategy 179 Foundations of the Strategy 179 Performance in Different Scenarios 181 Lean 183 When to Use the Protective Call Strategy 184 Examples 187 Synthetic Put Synopsis 191 Chapter 11 The Collar Strategy 193 Foundations of the Strategy 193 Performance in Different Scenarios 194 Lean 197 Examples 199 Collar Synopsis 204 Part III Advanced Strategies: Spread Trading, Straddles, and Strangles 207 Chapter 12 Vertical Spreads 209 Construction of a Vertical Spread 210 Value and the Vertical Spread 211 Spread Prices Fluctuate 217 Factors that Affect Spread Pricing 218 Rolling the Position 218 Time Decay and Volatility Trading Opportunities 220 An Imaginary Spread Scenario 222 Recap with Special Insights 224 Examples 225 Bull Spread Synopsis 230 Bear Spread Synopsis 231 Chapter 13 Time Spreads 233 Construction of the Time Spread 233 Behavior of the Spread 234 Effects of Stock Price on the Time Spread 236 Effects of Volatility on the Time Spread 237 Buyer Risk and Reward 244 Seller Risk and Reward 245 Rolling the Position 246 Concluding Thoughts 249 Examples 249 Time Spread Synopsis 253 Chapter 14 The Stock Replacement/Covered Call Strategy (Diagonal Spread) 255 When to Use the Diagonal Spread 257 Rolling the Position 259 Conclusion 259 Chapter 15 Straddles 261 What Is a Straddle? 261 Straddle Scenarios 262 How It Works 262 Factors that Affect Straddle Prices 263 Risks and Rewards 266 Break-Even, Maximum Reward, and Maximum Risk 267 Conclusion 271 Examples 271 Long Straddle Synopsis 276 Short Straddle Synopsis 277 Chapter 16 Strangles 279 What Is a Strangle? 280 Strangle Scenarios 281 How It Works 281 Factors that Affect Strangle Prices 282 Risks and Rewards 285 Break-Even, Maximum Reward, and Maximum Risk 285 Conclusion 289 Examples 289 Long Strangle Synopsis 294 Short Strangle Synopsis 294 Part IV Combination Strategies 297 Chapter 17 The Butterfly 299 Constructing the Butterfly 299 Why Use Butterflies? 301 Butterfly and Synthetic Positions 303 What Will a Butterfly Cost? 305 Butterfly and the Greeks 307 Iron Butterfly 309 Long Iron Butterfly 312 Using the Butterfly 312 Long Butterfly Synopsis 313 Short Butterfly Synopsis 314 Chapter 18 The Condor 315 Long Condor 315 Short Condor 316 Why Use Condors? 317 How It Works 320 Condors versus Butterflies 321 Condors and the Greeks 323 Iron Condors 326 How Do We Use Condors? 330 Long Condor Synopsis 331 Short Condor Synopsis 332 Conclusion 335 Appendix: Five Trading Sheets 337 About the Author 343 Index 345