Option Theory and Trading: A Step-by-Step Guide To Control Risk and Generate Profits
Praise for Options Theory and Trading\ "I've had the pleasure of teaching with Ron Ianieri at numerous live seminars for traders and investors, and one thing is for sure-Ron knows options! Now Ron has created a thorough, easy-to-read guide that you can benefit from in many ways, whether you are experienced in options trading or just starting out. I believe you will find Options Theory and Trading like Ron himself . . . full of knowledge, entertaining, fast-paced, and a joy to be around."\...
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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.
Preface. Acknowledgments. PART I Understanding Terms and Theory. CHAPTER 1 Options Basics and Terms. Calls and Puts. Classes and Series. In the Money, Out of the Money, and At the Money. Premium and Time Decay. Intrinsic versus Extrinsic Value. Volatility. CHAPTER 2 Calls and Puts. Call Options. Put Options. CHAPTER 3 Option Theory. Option Pricing Models. Fundamentals of Pricing Models. Types of Pricing Models. Inputs of the Options Pricing Model. Outputs of the Pricing Model. CHAPTER 4 Option Theory and the Greeks. Delta. Gamma. Vega. Theta. Second-Tier Greeks. CHAPTER 5 Synthetic Positions. Defining Synthetics. Synthetic Stock. Synthetic Call. Synthetic Put. PART II Basic Strategies. CHAPTER 6 Introduction to Trading Strategies. Directional Trading Strategies. In-the-Money, Out-of-the-Money, and At-the-Money Options. Leverage and Risk. CHAPTER 7 Covered Call/Buy-Write Strategy. Foundations of the Strategy. Performance in Different Scenarios. Lean. Rolling the Position. Examples. Covered Call/Buy-Write Synopsis. CHAPTER 8 The Covered Put/Sell-Write Strategy. Reviewing Selling Short. Foundations of the Strategy. Performance in Different Scenarios. Lean. Rolling the Position. Examples. Covered Put/Sell-Write Synopsis. CHAPTER 9 The Protective Put Strategy. Foundations of the Strategy. Performance in Different Scenarios. Lean. When to Use the Protective Put Strategy. Examples. Protective Put Synopsis. CHAPTER 10 The Synthetic Put/Protective Call Strategy. Foundations of the Strategy. Performance in Different Scenarios. Lean. When to Use the Protective Call Strategy. Examples. Synthetic Put Synopsis. CHAPTER 11 The Collar Strategy. Foundations of the Strategy. Performance in Different Scenarios. Lean. Examples. Collar Synopsis. PART III Advanced Strategies: Spread Trading, Straddles, and Strangles. CHAPTER 12 Vertical Spreads. Construction of a Vertical Spread. Value and the Vertical Spread. Spread Prices Fluctuate. Factors that Affect Spread Pricing. Rolling the Position. Time Decay and Volatility Trading Opportunities. An Imaginary Spread Scenario. Recap with Special Insights. Examples. Bull Spread Synopsis. Bear Spread Synopsis. CHAPTER 13 Time Spreads. Construction of the Time Spread. Behavior of the Spread. Effects of Stock Price on the Time Spread. Effects of Volatility on the Time Spread. Buyer Risk and Reward. Seller Risk and Reward. Rolling the Position. Concluding Thoughts. Examples. Time Spread Synopsis. CHAPTER 14 The Stock Replacement/Covered Call Strategy (Diagonal Spread). When to Use the Diagonal Spread. Rolling the Position. Conclusion. CHAPTER 15 Straddles. What Is a Straddle? Straddle Scenarios. How It Works. Factors that Affect Straddle Prices. Risks and Rewards. Break-Even, Maximum Reward, and Maximum Risk. Conclusion. Examples. Long Straddle Synopsis. Short Straddle Synopsis. CHAPTER 16 Strangles. What Is a Strangle? Strangle Scenarios. How It Works. Factors that Affect Strangle Prices. Risks and Rewards. Break-Even, Maximum Reward, and Maximum Risk. Conclusion. Examples. Long Strangle Synopsis. Short Strangle Synopsis. PART IV Combination Strategies. CHAPTER 17 The Butterfly. Constructing the Butterfly. Why Use Butterflies? Butterfly and Synthetic Positions. What Will a Butterfly Cost? Butterfly and the Greeks. Iron Butterfly. Long Iron Butterfly. Using the Butterfly. Long Butterfly Synopsis. Short Butterfly Synopsis. CHAPTER 18 The Condor. Long Condor. Short Condor. Why Use Condors?. How It Works. Condors versus Butterflies. Condors and the Greeks. Iron Condors. How Do We Use Condors? Long Condor Synopsis. Short Condor Synopsis. Conclusion. Appendix: Five Trading Sheets. About the Author. Index.
