The Complete Options Trader: A Strategic Reference for Derivatives Profits

The Complete Options Trader is that much-need comprehensive reference, a compilation of the many attributes options traders need. Thomsett lays out a rich and complete guide to 100 strategies, including profit and loss calculations, illustrations, examples, and much more. A thorough evaluation of these strategies (and the rewards and risk involved) demonstrates how a broad approach to analytically using options can and does enhance portfolio profits with lower levels of risk. The book also features a complete glossary of terms used in the options industry, the most comprehensive glossary of this nature currently available.

Introduction:

This book is a comprehensive reference for the entire options market, exploring all aspects of options trading, risk, and potential for consistent profits. Most people prefer to focus on the listed options available on individual stocks, and this is the focus of the examples in the Option Strategies chapter. In 1973, knowledge (or, at least, awareness) of options was limited and only a few traders had heard anything about them. There was practically no source for education on the topic and most stockbrokers were illequipped to advise clients about trading options. Today, traders go online to get immediate information, but “online” did not exist in 1973. The Internet as a widespread tool for the market was two decades away. Today, however, the entire options market has become mainstream and a growing number of people are recognizing that options can provide many roles within a portfolio and can be used to manage a broad range of risks. Online sites also offer a diverse level of education and free examples of trades.

The modern options market would not be possible without the Internet. Unlike the past, when traders had to rely on stockbrokers for quotes and order placement, and information was exchanged over the phone, today’s market allows everyone to see in an instant what the pricing is for thousands of options. Trades can be executed by traders themselves for a very small transaction fee, and with nearly immediate order filling. The stockbroker has become obsolete in the options industry. This does not mean that financial planning is not of great value. However, an options trader should possess a level of knowledge about risk and should be able to make trading decisions without relying on an advisor. For longer-term financial and tax planning, financial planners offer specific value; for short-term trading decisions, traders should make their own decisions.

The concept of asking a broker’s advice for an options trade is contrary for three reasons. First, stockbrokers are not necessarily skilled in the options market, even if they are licensed to execute options trades. Second, options trading demands on-going tracking of both options and the stocks they refer to, often minute by minute. Third, paying commissions to a full-service brokerage firm erodes profits from options trades, making many strategies marginal or impractical.

This book is designed for the skilled market trader and investor who has not necessarily been exposed to options. These investors are more likely than average to employ a discount brokerage service, to make their own decisions, and to monitor their investments. Full-commission brokerage is appropriate only for clients who are worried about risk, less knowledgeable about markets, and who trust their broker to give them sound advice. It is also designed to provide value to the portfolio manager who may be involved with equity and debt securities and may discover hedging opportunities with the added utility of options. In fact, portfolio risks can be reduced dramatically with options- based hedging tools.

For both individual investors and portfolio managers, options expand the profit universe by enabling the mitigation and elimination of risk. In the past, options have been viewed by “the crowd” of Wall Street as an oddity, a side-bet, or a separate market, appropriate only for speculators. But as new products and new strategies have been developed, this outlook has evolved. Today, retail and institutional investors use options to (a) insure long portfolio positions, (b) hedge short risks, (c) exploit short-term market price swings, and (d) enhance profits. Even in the most basic of portfolios, all of these applications of options make them valuable management and risk-reduction tools. The most basic speculation in options is an entry strategy for many options traders, but it becomes less important over time. Today, the options market has grown into a means for taking much of the risk out of the investment equation.

This book provides a market overview and discussion of risks, in addition to a comprehensive listing of strategies. Most of these strategies are accompanied by tables and illustrations identifying profit and loss zones as well as breakeven points. This book also provides a comprehensive explanation of the many strategies, including profit, loss, and breakeven analysis complete with examples and payoff diagrams. It also has a complete glossary of terms used in the options industry: elements of value, calculation of returns from option and stock trading, how stocks are picked for options trading, taxation of the options market, and online and print resources for further research.

Contents:

• Market Overview
• Market Risks
• Option Strategies
• Option Glossary
• Elements of Value
• Return Calculations
• Options and Stock Selection
• Option Taxation

The Complete Options Trader: A Strategic Reference for Derivatives Profits By Michael C. Thomsett pdf