THÔNG TIN TÀI LIỆU
by George Fontanills
Trading Options
FOR
DUMmIES
‰
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Trading Options For Dummies
®
Published by
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10 9 8 7 6 5 4 3 2 1
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About the Author
Since 1993, Optionetics has provided investment education services and
trading tools to more than 250,000 people from over 50 countries. Every day,
Optionetics helps traders navigate the markets and chart paths to financial
security. In fact, it not only stands by its pledge to provide the highest quality
investment education possible, but it also guarantees it.
Optionetics high-profit, low-risk, low-stress strategies are based on over
dozens of trading techniques perfected by master trader George Fontanills,
founder of Optionetics. Avoiding overly theoretical or technically compli-
cated material, Optionetics represents a practical, balanced approach to
trading profitably in today’s markets. Optionetics diverse range of educa-
tional offerings includes seminars, publications, workshops, CDs and DVDs,
home-study materials, books, and software.
Choose Optionetics for the premier educational resources and tools to help
you become the successful trader you’ve always wanted to be.
Visit
www.optionetics.com for more information.
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Dedication
This book is dedicated to the students of Optionetics and the readers of this
book who may follow in their footsteps.
Author’s Acknowledgments
Special thanks to Clare White, C.M.T., for all her hard work in creating an
excellent options education tool.
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Publisher’s Acknowledgments
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Contents at a Glance
Introduction 1
Part I: Getting Started 7
Chapter 1: Options Trading and Investing 9
Chapter 2: Introducing Options 19
Chapter 3: Trading Places: Options for Stocks 33
Chapter 4: Option Risks and Rewards 51
Part II: Evaluating Markets, Sectors, and Strategies 65
Chapter 5: Tapping Into the Market’s Mood 67
Chapter 6: Targeting Sectors with Technical Analysis 85
Chapter 7: Kicking the Wheels of a New Strategy 111
Chapter 8: Mapping Out Your Plan of Attack 127
Part III: What Every Trader Needs
to Know About Options 141
Chapter 9: Getting a Handle on Option Styles 143
Chapter 10: Guarding Your Assets with Options 163
Chapter 11: Limiting Your Downside When Trading the Trend 183
Chapter 12: Combining Options to Limit Your Position Risk 201
Chapter 13: Benefiting from Exchange-Traded Funds 215
Part IV: Advanced Strategies for Option Traders 237
Chapter 14: Profiting Without a Market Outlook 239
Chapter 15: Keying In on Volatility for Trading Opportunities 257
Chapter 16: Capitalizing When Markets Move Sideways 283
Part V: The Part of Tens 309
Chapter 17: Ten Top Option Strategies 311
Chapter 18: Ten Do’s and Don’ts in Options Trading 323
Glossary 331
Index 345
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Table of Contents
Introduction 1
About This Book 1
Conventions Used in This Book 2
What You’re Not to Read 2
Foolish Assumptions 2
How This Book Is Organized 3
Part I: Getting Started 3
Part II: Evaluating Markets, Sectors, and Strategies 4
Part III: What Every Trader Needs to Know About Options 4
Part IV: Advanced Strategies for Option Traders 4
Part V: The Part of Tens 5
Glossary 5
Icons Used in This Book 5
Where to Go from Here 6
Part I: Getting Started 7
Chapter 1: Options Trading and Investing . . . . . . . . . . . . . . . . . . . . . . . . .9
Understanding Options 10
Knowing option essentials 10
Gaining comfort with option mechanics 12
Recognizing option risks and rewards 12
Incorporating Options into Your Routine 12
Adding options to your analysis 13
Trying out investing and trading strategies 14
Putting Options to Work 14
Understanding option styles 15
Using options to limit your risk 15
Applying options to sector approaches 16
Using Options in Challenging Markets 16
Reducing your directional bias 17
Benefiting when the markets go nowhere 17
Considering your obstacles 17
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Chapter 2: Introducing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Understanding Option Contracts 19
Getting a grasp on option basics 19
Comparing options to other securities 21
Uncovering an Option’s Value 22
Understanding options rights and obligations 23
Taking in some terminology 23
Accessing All Your Options 24
Identifying options 24
Expiring options gracefully 28
Dissecting your rights 28
Creating Contracts 29
Opening and closing positions 29
Selling an option you don’t own 30
Keeping Some Tips in Mind 32
Chapter 3: Trading Places: Options for Stocks . . . . . . . . . . . . . . . . . . . .33
The U.S. Options Exchanges 33
Navigating the Markets 34
Trade execution 34
Option market participants 35
Transactions unique to options 36
Trading rules you should know 37
Weighing Option Costs and Benefits 39
Identifying costs unique to options 39
Valuing options benefits 41
Grasping Key Option Pricing Factors 44
Introducing option Greeks 44
Connecting past movement to the future 46
Chapter 4: Option Risks and Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Understanding Your Trading Risks 51
Risking money with stocks 52
Calculating option risks 54
Reaping Your Rewards 55
Benefiting from stocks 55
Breaking even with options 56
Profiling Risk and Reward 57
Profiling stock trades with risk graphs 58
Profiling option trades with risk graphs 59
Combining option positions 61
Considering the worst-case scenario 63
Trading Options For Dummies
xii
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Part II: Evaluating Markets, Sectors, and Strategies 65
Chapter 5: Tapping Into the Market’s Mood . . . . . . . . . . . . . . . . . . . . . .67
Assessing the Market’s Bias 67
Judging the strength of a move 68
(Psycho)-analyzing the market 73
Watching Call and Put Activity 74
Understanding put-to-call ratios 75
Using the put volume indicator 77
Using Volatility to Measure Fear 78
Measuring volatility 78
Recognizing impact from changing volatility 79
Spelling fear the Wall Street way: V-I-X 79
Applying Breadth and Sentiment Tools 80
Locating neutral areas for indicators 81
Identifying indicator extremes 82
Chapter 6: Targeting Sectors with Technical Analysis . . . . . . . . . . . .85
Getting Technical with Charts 85
Chart basics 86
Adjusting your time horizon for the best view 87
Visualizing supply and demand 87
Identifying Relatively Strong Sectors 89
Relative ratios 90
Rate of change indicator 92
Using Sector Volatility Tools 94
Displaying volatility with indicators 94
Analyzing volatility with Bollinger bands 97
Projecting Prices for Trading 99
Support and resistance 99
Trends 101
Channels 102
Price retracements and extensions 105
Projections and probabilities 107
Chapter 7: Kicking the Wheels of a New Strategy . . . . . . . . . . . . . . .111
Monitoring Option Greek Changes 111
Tracking premium measures 112
Changing volatility and option prices 113
Paper Trading an Approach 114
Trading on paper: pluses and minuses 115
Implementing electronic paper trades 115
xiii
Table of Contents
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Using Trading Systems 116
Knowing what you’re getting 116
Performing a backtest 117
Adding risk management to a backtest 121
Shifting from Knowledge to Mastery 122
Setting the right pace 122
Achieving mastery through longevity 124
Chapter 8: Mapping Out Your Plan of Attack . . . . . . . . . . . . . . . . . . . .127
Managing Your Costs 127
Optimizing Order Execution 129
Understanding option orders 130
Entering a new position 134
Executing a quality trade 136
Exiting an existing position 138
Part III: What Every Trader Needs
to Know About Options 141
Chapter 9: Getting a Handle on Option Styles . . . . . . . . . . . . . . . . . . .143
Nailing Down Index Options 143
Getting to the nitty-gritty of indexes 143
Capitalizing on an index with options 146
Watching Out for Style Risk 148
American-style options 148
European-style options 149
Exercising Your Options American Style 151
Mechanically speaking 152
What you see is what you get 152
To exercise or not, that is the question 153
Exercising Your Options the Euro Way 154
Tracking index settlement (the “SET”) 154
Cashing in with exercise 155
Satisfying Option Obligations 156
American-style stock options 156
Expiring uninspiring options 158
European-style options 161
Breaking It Down: American-Style Index Options 161
Exercising rights 162
Meeting obligations 162
Trading Options For Dummies
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[...]... for Your Results 327 Don’t Stop Learning 328 Do Love the Game 329 Glossary 331 Index 345 xvii xviii Trading Options For Dummies Introduction W elcome to Trading Options For Dummies This book brings you option strategies for managing risk and navigating a variety of market conditions I truly believe that by taking care of risk first, profits will follow With that... for option buyers and sellers It identifies how you trade these securities on exchanges, along with how your rights and obligations are satisfied As with any security, you must understand the risks and rewards associated with these contracts Part I provides foundational risk and reward information for you 3 4 Trading Options For Dummies Part II: Evaluating Markets, Sectors, and Strategies Trading options. .. foundational risk and reward information for you Chapter 1 Options Trading and Investing In This Chapter ᮣ Developing an appreciation for options ᮣ Using option analysis with any market approach ᮣ Focusing on limiting risk ᮣ Capitalizing on advanced techniques W hether you’re new to trading or an experienced investor, listed stock and index options are great vehicles for managing risk and growing your... Started Chapter 2 Introducing Options In This Chapter ᮣ Recognizing an option contract ᮣ Checking out an option’s value ᮣ Accessing option data ᮣ Gaining some tips on trading options O ptions come in many forms and sizes, but in this book I focus on two specific types of options: listed stock options and listed index options Both of these types of options are traded in the options market They provide... your trading career I use throughout the book, especially in Chapters 4 and 10 through 17 which are strategy oriented Incorporating Options into Your Routine Understanding options and what drives their prices gives you an alternate view of the stock market In addition to sentiment information provided by option trading, the conditions you more thoroughly understand as an options Chapter 1: Options Trading. .. true to the resource goal of this text, a nice glossary is provided that focuses on options to help you find the information you need quickly Icons Used in This Book To supplement the topics discussed in Trading Options For Dummies, I’ve also added different comments aimed at reiterating core ideas and giving you some trading insight I use the following icons to point out these insights: When encountering... to consider for risk management, when applicable There are a million ways to successfully trade the markets, but certain challenges are universal to all of them Tools and techniques focused on addressing these challenges are also provided throughout 2 Trading Options For Dummies This book allows you to move from topic to topic in any order or serves as a start to finish guide for option trading Use... characteristics associated with these contracts When applying for options trading with your broker, your broker will send you the reference guide Characteristics and Risks of Standardized Options This publication written by the Options Clearing Corporation (OCC) must be distributed by brokers to their clients prior to allowing them to trade options It describes option contract specifications, mechanics,... option contract specifications, mechanics, and the risks associated with the security That publication, when coupled with Trading Options For Dummies, will give you the tools you need so you can understand your risks and use options effectively About This Book There are a ton of trading titles out there, including those focusing on option strategies This book focuses primarily on approaches aimed at... moment when reading the core content, check for one of these to keep you progressing smoothly Concepts that reiterate ways to manage potential risks appear with this icon It highlights important reminders in case you missed them in the text 5 6 Trading Options For Dummies Where to Go from Here Whether you’re seeking to improve longer term investing or shorter term trading results, strategies geared toward . written as well as show you how Trading Options For Dummies can be the resource you’ve been searching for. Here’s what I’ve assumed about you: 2 Trading Options For Dummies 03_241769 intro.qxp. by George Fontanills Trading Options FOR DUMmIES ‰ 01_241769 ffirs.qxp 2/22/08 3:06 PM Page iii Trading Options For Dummies ® Published by Wiley Publishing, Inc. 111. Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies. com and related trade dress
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