The Options Trading Body of Knowledge: The Definitive Source for Information About the Options Industry

Thomsett’ book may be viewed as three books in one or as a three part book;
Part 1 (first 80 pages) provides a concise and clear expose of what every trader/investor needs to know about securities (stocks and options) as elements of a well managed portfolio for a high rate of return with manageable levels of risk. Part 2 (110 pages) lists most any options strategy that you can think of, in a format suited for review and reference. Part 3 (90 pages) provides a comprehensive glossary and reference list for books and on-line sources for option traders.

Thomsett’s introduction to History of Options is fascinating, especially since it refers to Aristotle’s `Politics’ from 350 B.C. and Tulipmania in 1637 AD, elucidating an excellent distinction between well thought out strategy vs. greed driven crowd following. The entire presentation is excellent. I wish the numerous paragraphs of prose were also interspersed with a few more figures to break up the monotony of thousands of words, albeit strewn with pearls of clear wisdom in almost every paragraph. Mr. Thomsett has a way with words; example- `any position with both calls and puts that is not a straddle is classified as a combination.’

The term `extrinsic value’ has multiple definitions, but I like Thomsett’s choice to keep Time Value distinct from extrinsic value, the latter being attributable primarily to implied volatility. Other authors appear to have left it entirely to Thomsett to point out that `options are one of the few alternatives for offsetting the inflation and tax risk combination without violating your own risk tolerance level.’ While there is a dearth of figures, there is an abundance of tables with valuable information such as `Breakeven Rates’ of gain to offset Tax and Inflation Risk (Table 2.1).

Given my penchant for mathematical equations, I was pleasantly surprised to find that Mr. Thomsett has successfully presented `Elements of Value’ for options without the need for Black-Scholes Equation (which is, of course, included in the extensive Glossary). The author has successfully demonstrated that `traders will improve their overall portfolio performance by defining their goals in advance’. The simple formulas the author uses to calculate annualized returns for correct choice of options and other useful metrics are well within the average reader’s grasp.

The discussion of option strategies in Part 2, would be more amenable to a greater number of readers if Mr. Thomsett chose to cover the simplest strategies (such as Long Call, Long Put, Covered Call and Married Put), up front to introduce the notation and the profit/loss charts without having to muddle through Alligators (in A-C group) to get to the Long Call in D – P group.

In summary, this book is definitely worth owning by every option trader interested in good portfolio performance.

This is only the intro and first chapter, but it does a good job of explaining the basic terms of options trading. We’ve been considering doing some options trading, but I couldn’t seem to follow my husband’s explanation of how they worked. The author does a pretty good job of explaining with examples.

Great Book a must have for any trader.