The Options Playbook was created to demystify options trading and teach all types of investors different plays for all market conditions. Written by Brian Overby, Senior Options Analyst at Ally Invest, he’ll give you clear, easy-to-understand explanations of more than 40 of the most poplar option strategies broken down into a play-by-play format.
For more experienced traders, Brian dives into an expanded section on implied volatility explaining how this handy variable can be used to find the potential range of the stock over the options life. He provides a detailed section on pricing variables (Greeks) to help you understand how an option’s price is affected by changes in market conditions. Plus, you’ll learn how time decay and change in implied volatility can affect your trade after it’s in place and how to recover if things don’t go according to plan.
OPTION TRADING is a way for savvy investors to leverage assets and control some of the risks associated with playing the market. Pretty much every investor is familiar with the saying, “Buy low and sell high.” But with options, it’s possible to profit whether stocks are going up, down, or sideways. You can use options to cut losses, protect gains, and control large chunks of stock with a relatively small cash outlay.
On the other hand, options can be complicated and risky. Not only might you lose your entire investment, some strategies may expose you to theoretically unlimited losses. So before you trade options, it’s important to think about the effects that variables like implied volatility and time decay will have on your strategy. This playbook will help you answer those tough questions. No need to ponder, just turn to the play.
I’m not going to derive the Black-Scholes option pricing model in this book. As a matter of fact, this is one of the only times I even mention the Black-Scholes model. It’s nice to know that sort of thing, but the goal here is to provide the essential knowledge needed to trade a specific strategy, not to completely bore the pants off of you. Throughout this playbook, you’ll also find “Options Guy’s Tips,” which clarify essential concepts or give you extra advice on how to run a particular play. As an indicator of these tips’ importance, I put a little picture of my head next to them like the one you see above. So be sure to pay extra attention whenever you see my melon.
- Taking Stock of the Situation
- What’s an Option?
- The Two Flavors of Options
- Definitely-not-boring Definitions
- What Is Volatility?
- Meet the Greeks
- Cashing Out Your Options
- Keeping Tabs on “Open Interest”
- Getting Your Feet Wet
- Writing Covered Calls
- Buying LEAPS
- Selling Cash-Secured Puts
- Where to Find Your Favorite Plays
- The Players in the Game
- How We Roll
- Keeping an Eye on Position Delta
- What Is Early Exercise and Assignment and Why Does it Happen?
- Five Mistakes to Avoid When Trading Options
- So What’s an Index Option, Anyhow?
- A Brief History of Options