The Options Strategist: How to Invest and Trade Equity-related Options
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Equity options, the all-purpose vehicles that today’s smartest investors use to increase profits, reduce risks, or both
The Options Strategist takes an in-depth look at the theory behind options investing. Option pricing, implied and historical volatility, the Greeks, the Black-Scholes Option Pricing Model: For each of these topics, key questions are asked and answered, central arguments are introduced and analyzed, and specific technical terms are demystified to underscore their practical applications (or lack thereof) for options traders and investors.
Author’s Introduction:
A major assumption is that people who use options fall into two broad categories: investors and traders. We made this distinction several years ago in a chapter titled “Investing and Trading Strategies for the Individual Investor,” which appears in Options: Essential Concepts and Trading Strategies. In reality, most options users are neither pure investors nor pure traders. They invest part of their capital and trade with their “mad money.” This distinction led us to group the investment strategies in Chapters 2 and 5 and the trading strategies in Chapters 3 and 6. Chapter 7, which deals with the special features of index options, presents both investing and trading strategies.
To understand any option strategy, some theoretical knowledge is necessary, but many options books present all of the theory before explaining any strategies. By the time readers have plowed through the theory, their heads are spinning and they can’t see the connection between the theory and the strategies.
We took a different tack. We believe that basic theory is necessary to understand basic options strategies, and more advanced theory is required for more advanced strategies. Thus, the basic theory presented in Chapter 1 should help the reader understand the strategies presented in Chapters 2 and 3. The more advanced concepts in Chapter 4 lay the groundwork for the strategies in Chapters 5, 6, and 7.
Chapter 8 looks at ways to hedge positions in corporate stock and options. Some of the strategies in that chapter could have been included with the other advanced strategies, so readers who don’t hold any of their employer’s stock should resist the urge to skip Chapter 8. Chapter 9 goes back to theoretical notions, with more indepth discussions of volatility, time decay, options valuation, and other concepts that were introduced in earlier chapters.
Although this information is helpful, it is not critical in implementing trading or investing strategies; hence, there are no strategy chapters that follow Chapter 9. Finally, Chapter 10 discusses tactical considerations, since there is more to using options successfully than simply mastering all of the strategies.
Contents:
- Options 101: Basic Terms, Definitions, and Strategies
- Basic Investment Strategies
- Basic Trading Strategies
- Options 401: Option Pricing, Volatility, and a First Greek Letter
- Advanced Investment Strategies
- Advanced Trading Strategies
- Options on Exchange-Traded Funds and on Indices
- Hedging Corporate Stock and Options
- Options 901: Advanced Theoretical Notions
- Tactical Considerations
The Options Strategist: How to Invest and Trade Equity-related Options By Marc Allaire pdf
| Author(s) | |
|---|---|
| Format | |
| Pages | 264 |
| Publication Year | 2003 |
3 reviews for The Options Strategist: How to Invest and Trade Equity-related Options
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Mario Bravo (verified owner) –
Allaire has been a broker, options trader, options consultant (to the CBOE) and options teacher and author—and he knows how to write. As my own trading has developed I have found again and again that he has anticipated my questions and dealt with them in a sound and forthright manner. Sometimes what he says is a little out-of-date; the bid/ask spreads on the most commonly traded stocks have shrunk (often to a penny or two), and the gaps between strike prices, especially for widely-held stocks trading below 50, do not now typically exceed $1. Critically, for those who trade on-line with the less-expensive firms, commissions have shriveled to the vanishing-point; I can roll out (and down or up as warranted) a pair (same strikes and expirations on the same stock) of short combinations in a single multi-leg spread trade (that’s four sets of two options each) for $1.25 per contract. So complex option trades in a diversified yet very small personal portfolio are more practical than ever before. On a few minor points I don’t agree with him (or with anyone else), but his presentations of either covered combos or put and call spreads, or short combinations and straddles (at the money, the latter a very bad idea and he shows why) would have made the hours (not to say the dollars) I’ve spent more than worth it (my website can show you how I’ve employed these ideas). He also does a great job explaining not just what Δ is but why it matters, and why net Δ for complex stock/option positions makes a very helpful measure of just how much risk I’m taking on.
The big book on options is still Lawrence McMillan, Options as a Strategic Investment, the most recent edition of which came out just last year, which I also review. But McMillan says more than once that he’s writing for investors rather than traders, and in any case my advice to a beginning-to-intermediate trader would be to start with Allaire, whose down-to-earth transparency is in my experience unexcelled. And he’s fun to read. His comments on leverage are marvelous—especially his emphasis on POGWO (“probability of getting wiped out”). As he nicely illustrates, no matter how great the odds against disaster in any one instance (“It’ll never go there”), if I do something over and over, giving the improbable enough chances, it not only can happen but approaches inevitability; long-term, whatever I do, POGWO has to be zero. He concludes with some pungent comments on Long-Term Capital Management and the admonition, “Don’t wait until you are awarded a Nobel Prize to learn from this experience.”
When a strategy interests you (or you’re already employing it), or you’re ready to move much beyond Δ in option mathematics, by all means consult McMillan, who belongs on every option investor/trader’s shelf. And even McMillan, though much more recent, takes no notice of the option indices for writing covered calls (BXM, BXY) and puts (PUT), which demonstrate the long-term superiority of option strategies to straight stock investing; the CBOE website, with its data and background papers on these indices, is getting far too little attention in financial literature and the financial press—don’t wait for your Nobel Prize before you avail yourself of that resource. But when I’m ready to begin a new strategy, or to re-examine one I’ve used for years, I still reach first for Allaire.
Amoura Thompson (verified owner) –
This book is a little bit on the basic side, but gives a nice review of different option strategies. Nothing advanced, but still a nice summary of different strategies.
Theodore Brewer (verified owner) –
I’ve bought and sold many options using a variety of strategies. I enjoy reading as much as possible on options strategies because of the complexity of the subject. The author writes in a very clear logical sequence starting with Options 101 and then rapidly moves on to the more advanced strategies. He doesn’t lose you in technical terms but keeps your interest as he walks through Options 401 (more advanced), and onto the more complex stuff. If you want to understand all of the “greek” options stuff, he explains it in an understandable format. Most options books I read get too generic and I lose interest but this book was different and I actually enjoyed it. I have 5 options books on my shelf right now and this one is the best of the group by far.