Options for the Stock Investor: How to Use Options to Enhance and Protect Returns - Softcover

Bittman, James B.

Softcover

ISBN 10: 0071443045 ISBN 13: 9780071443043

Verlag: McGraw-Hill Education Ltd, 2005

Inhaltsangabe

McGraw-Hill’s classic options bestseller, Options for the Stock Investor, has been updated to reflect changes in the options market. This extensively revised second edition features all-new material describing electronic trading, decimalization, and single stock futures, along with increasingly popular vehicles such as stock indexes, LEAPs, and exchangetraded funds.

Über diesen Titel

Über die Autorin bzw. den Autor

James B. Bittman(Chicago, IL) is senior staff instructor at theOptions Institute, the education arm of the Chicago BoardOptions Exchange, and the author of several influential bookson options.

Von der hinteren Coverseite

[BACK COVER][CATEGORY] Investing[CORNER CUT/READING LINE] Includes powerful Op-Eval4™ option analysis software [HEAD] Praise for the 1st Edition:

“The thoroughness of the coverage makes this exceptionally valuable reading for the … investor who’d like to add some sophistication in establishing and managing his stock holdings by using options.”

--Technical Analysis of Stocks and Commodities

[HEAD]

Straightforward option strategies that reduce your risk and increase your profit potential in virtually any investing or trading program

Options for the Stock Investor, Second Edition introduces you to the many ways you can use options to generate guaranteed cash flow, lower the cost basis of your stocks, increase your trading leverage and profit potential, and more.

Updated from its bestselling first edition to provide you with new option techniques and strategies, this comprehensive handbook explores:

• Risk-reduction strategies for conservative investors, including buying calls and covered writing
• Profit-generating strategies for aggressive traders, including vertical spreads, straddles, and strangles
• Flexible strategies for improving your risk/return profile, including covered straddles, covered combos and ratio spreads

Options for the Stock Investor, Second Edition details how investors can use options to effectively control the risk of holding stock positions, and outlines aggressive strategies traders can use to improve their leverage and profit potential.

[FLAP COPY]

Over the past decade, the best selling Options for the Stock Investor has shown thousands of stock investors how to use options to protect their portfolios from bad earnings reports, management miscues, and other unexpected events. Over that same period, scores of new trading rules and products have made options more viable and valuable for trades as well as investors.

Options for the Stock Investor, Second Edition, is updated and expanded to detail the many ways in which options can help you improve your investing performance over both the short- and long-term. Featuring a number of new strategies you can use to enhance your investment performance, whatever your investment style, this hands-on guide provides you with:

• Step-by-step explanations of what options are and how they work
• Detailed examples of option behavior in a wide variety of market environments
• Diagrams to help you visualize the profit or loss potential of every trade before you place it
• Insights into the psychological differences between investing and trading
• Examples of ratio spreads, and how they can be used as a “stock repair” for long positions or as a riskier, more high-profit, strategy for advanced traders
• Strategies for using options to improve the performance of exchange-traded funds, stock indexes, LEAPS, and other popular investment vehicles
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Op-Eval4™ software, provided free with Options for the Stock Investor, allows you to apply option-pricing formulas to options on individual stocks and indexes, and options that are subject to both American-style and European-Style exercise. The features and capabilities of this program increase the transparency of each option trade you make, allowing you to analyze option prices, calculate theoretical option values, graph numerous option only and option/stock strategies, and more.

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An all-stock strategy has become far too uncertain for investors looking to improve stock market returns while protecting those returns, especially with the numerous risk-controlling tools that are available to those investors.

Options are the most versatile and valuable of those tools. Options for the Stock investor, 2nd Edition, shows you how to master the mechanics of options, develop realistic expectations of options behavior in virtually every type of market, and incorporate the protection and profit potential of options into your overall trading and investing program.

James Bittman is senior staff instructor at The Options Institute, the educational arm of the Chicago Board Options Exchange. He has been a successful options trader for more than two decades, and is the author of Trading Index Options, and Trading and Hedging with Agricultural Futures and Options and co-author of Options: Essential Concepts.

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OPTIONS FOR THE STOCK INVESTOR

How to Use Options to Enhance and Protect Returns

By James B. Bittman

The McGraw-Hill Companies, Inc.

Copyright © 2005 James B. Bittman
All rights reserved.

ISBN: 978-0-07-144304-3

Contents

Foreword by William J. Brodsky
Acknowledgments
Introduction
Part 1 – The Fundamentals of Options
Chapter 1 – The Vocabulary of Options
Chapter 2 – How Options Work
Chapter 3 – Why Options Have Value
Chapter 4 – Option Price Behavior
Part 2 – Basic Investing Strategies
Chapter 5 – Buying Calls–;An Investor's Approach
Chapter 6 – Covered Writing
Chapter 7 – Adjusted Covered Writes
Chapter 8 – Married Puts, Protective Puts, and Collars
Chapter 9 – Writing Puts
Chapter 10 – LEAPS Have Many Applications
Part 3 – Trading Strategies 159
Chapter 11 – Operating the Op-Eval4 Software
Chapter 12 – Trading Options
Chapter 13 – Vertical Spreads
Chapter 14 – Straddles and Strangles
Part 4 – Advanced Topics
Chapter 15 – Ratio Spreads for Investors and Traders
Chapter 16 – Covered Combos–;Long and Short
Chapter 17 – Cash-Settled Index Options and ETF Options
Part 5 – Investing and Trading Psychology
Chapter 18 – The Difference between Investing and Trading with Options
Chapter 19 – Getting Started
Chapter 20 – Learning to Trade

Excerpt

CHAPTER 1

THE VOCABULARY OF OPTIONS

INTRODUCTION

THIS CHAPTER DEFINES ALL OF THE GENERALLY ACCEPTED TERMINOLOGY THAT AN INVESTORNEEDS TO KNOW. Experienced option traders may notice, however, that not everyterm associated with options is listed. Options are often considered to be farmore complicated than they actually are, a situation that is exacerbated byindustry jargon, which is frequently used incorrectly or with conflictingmeanings. This book will use all essential terms as defined in this chapter:

Call option Assignment (and assignment notice)
Put option American-style exercise
Long call European-style exercise
Short call Effective purchase price
Long put Effective selling price
Short put Option buyer
Long Option writer (or option seller)
Short Covered
Strike price (or exercise price) Uncovered (or naked)
Expiration date In-the-money, at-the-money, out-of-
Exercise the-money
Premium Margin account
Intrinsic value Marginable transaction
Time value Initial margin
Cash account Maintenance margin
Cash transaction Margin call

If you are familiar with these terms, you may proceed to Chapter 2. If you wishto review their definitions, please keep in mind that these definitions arewritten on a basic level. The nuances will be explained in later chapters.

This chapter will look first at call options, then at put options. At the end ofthe chapter, there are questions (with answers following) that are designed toreinforce your understanding.

CALL OPTIONS

A call option is a contract between the call owner (or buyer) and the callwriter (or seller). A call option gives its owner the right to buy stock fromthe call writer at a specified price until a specified date. An equity optioncontract covers 100 shares of stock (one round lot). The strike price (orexercise price) is the price specified in the option contract at which stock istraded if the call is exercised. The expiration date is the date specified inthe option contract, after which the right contained in the option ceases toexist.

RIGHTS AND OBLIGATIONS

The buyer of one XYZ September 50 call has the right to purchase 100 shares ofXYZ stock from the call writer at $50 per share (the strike price) at any timeuntil the September expiration date. The call writer, in contrast, has anobligation to deliver 100 shares at $50 per share. If the call owner exercisesthe right to buy, the call writer must deliver the stock. The call buyer isdescribed as having a long call position. The call writer is described as havinga short call position.

Exercise occurs when the call owner declares the right to buy stock from thecall seller and makes the proper notifications. An assignment notice is given toa call writer and represents notification that a call owner has exercised theright to buy. The process by which this occurs is as follows: When a call ownerdecides to exercise, the first step is for the call owner to notify hisbrokerage firm. The brokerage firm then notifies the Options ClearingCorporation, which is the central clearinghouse and guarantor of all optiontransactions. The Options Clearing Corporation then makes a random selection ofa brokerage firm with a short call position. That brokerage firm, in turn,selects a customer with a short call position and notifies that customer thatthe option has been assigned. Brokerage firms typically select customers oneither a random or a first-in, first-out basis.

At this point, when an exercise form has been processed and an assignment noticehas been sent, a stock transaction has occurred: The call owner is the buyer ofstock, and the call writer is the seller of stock. The price of this transactionis the strike price of the option (plus or minus commissions). On the settlementdate of the stock transaction, the brokerage firms will transfer the appropriatefunds to the seller and shares of stock to the buyer.

A call option ceases to exist after one of two events occurs. First, if the callowner exercises the right to purchase stock, then the call writer must fulfillthe terms of the contract. After exercise, the option no longer exists, butstock has been purchased, and the call exerciser pays the amount indicated bythe strike price. If a 50 call is exercised, for example, the exerciser must pay$50 per share, or $5,000 for 100 shares. Second, if a call is not exercisedprior to expiration, it expires and the right ceases to exist. In this case, theoption is said to expire worthless.

COVERED AND UNCOVERED (OR NAKED) CALLS

If a call writer owns the stock on which the call is written and can deliverthat stock, the short call position is described as covered. In contrast, when acall writer does not own the stock, the short call position is described asuncovered or naked. In the case of an uncovered call, receiving an assignmentnotice means that the investor must acquire the stock to deliver. Since theprice at which the...

Details zur Ausgabe

• Verlag: McGraw-Hill Education Ltd
• Erscheinungsdatum: 2005
• Sprache: Englisch
• ISBN 10: 0071443045
• ISBN 13: 9780071443043
• Einband: Taschenbuch
• Anzahl der Seiten: 256
• Kontakt zum Hersteller: McGraw-Hill Education; https://www.mheducation.co.in/; ; Via Verdi, 8; Assago Milano; 20090; Italien