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.
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.
- 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