Options as a Strategic Investment, 4th edition – Lawrence G. McMillan
Options as a Strategic Investment, 4th edition
By: Lawrence McMillan
Publisher: New York Institute of Finance
Format: Ebook (PDF)
Description:
This blockbuster bestseller–more than 250,000 copies sold–is considered to be the bible of options trading. Now completely revised and updated to encompass all the latest options trading vehicles, it supplies traders and serious investors with an abundance of new, strategic opportunities for managing their investments.
Don’t Trade Options Without It
The market in listed options and non-equity option products provides investors and traders with a wealth of new, strategic opportunities for managing their investments. This updated and revised Fourth Edition of one of the best selling options book of all time gives you the latest market-tested tools for maximizing the earnings potential of your portfolio while reducing downside risk–no matter how the market is performing.
Inside this expanded edition are scores of proven techniques and business-tested tactics for investing many of the innovative new options products available. For example, you’ll find:
- Buy and sell strategies for Long Term Equity Anticipation Securities (LEAPs)
- A thorough analysis of neutral trading, how it works, and various ways it can improve your overall profit picture
- Detailed guidance for investing in the new structured products—products that behave like a portfolio hedged by options
- An extensive overview of futures and futures options
- The role of day trading in the options market
This comprehensive reference also shows you the concepts and applications of various option strategies–how they work, in which situations, and why…techniques for using index options and futures to protect your portfolio and improve your return…and the implications of the tax laws for option writers, including allowable long-term gains and losses.
In addition, detailed examples, exhibits, and checklists show you the power of each strategy under carefully described market conditions. Packed with graphs and charts to clarify profit and loss potential, margin requirements, and criteria for selection of a position, this classic remains an indispensable resource for investors determined to master the world of options—and profit.
Table of Contents:
Part I – Basic Properties of Stock Options
Chapter 1 – Definitions
- Elementary Definitions
- Factors Influencing the Price of an Option
- Exercise and Assignment: The Mechanics
- The Options Markets
- Option Symbology
- Details of Option Trading
- Order Entry
- Profits and Profit Graphs
Part II – Call Option Strategies
Chapter 2 – Covered Call Writing
- The Importance of Covered Call Writing
- Covered Writing Philosophy
- The Total Return Concept of Covered Writing
- Computing Return on Investment
- Execution of the Covered Write Order
- Selecting a Covered Writing Position
- Writing Against Stock Already Owned
- Diversifying Return and Protection in a Covered Write
- Follow-Up Action
- Special Writing Situations
- Covered Call Writing Summary
Chapter 3 – Call Buying
- Why Buy?
- Risk and Reward for the Call Buyer
- Which Option to Buy?
- Advanced Selection Criteria
- Follow Up Action
- A Further Comment on Spreads
Chapter 4 – Other Call Buying Strategies
- The Protected Short Sale (or Synthetic Put)
- Follow Up Actions
- The Reverse Hedge (Simulated Straddle)
- Follow-Up Action
- Altering the Ratio of Long Calls to Short Stock
- Summary
Chapter 5 – Naked Call Writing
- The Uncovered (Naked) Call Option
- Investment Required
- The Philosophy of Selling Naked Options
- Risk and Reward
- Summary
Chapter 6 – Ratio Call Writing
- The Ratio Write
- Investment Required
- Selection Criteria
- The Variable Ratio Write
- Follow-Up Action
- An Introduction to Call Spread Strategies
Chapter 7 – Bull Spreads
- Degrees of Aggressiveness
- Ranking Bull Spreads
- Follow-Up Action
- Other Uses of Bull Spreads
- Summary
Chapter 8 – Bear Spreads Using Call Options
- The Bear Spread
- Selecting a Bear Spread
- Follow-Up Action
- Summary
Chapter 9 – Calendar Spreads
- The Neutral Calendar Spread
- Follow-Up Action
- The Bullish Calendar Spread
- Follow-Up Action
- Using All Three Expiration Series
- Summary
Chapter 10 – The Butterfly Spread
- Selecting the Spread
- Follow-Up Action
- Summary
Chapter 11 – Ratio Call Spreads
- Differing Philosophies
- Follow-Up Action
- Summary
Chapter 12 – Combining Calendar and Ratio Spreads
- Ratio Calendar Spread
- Choosing the Spread
- Follow-Up Action
- Delta-Neutral Calendar Spreads
- Follow-Up Action
Chapter 13 – Reverse Spreads
- Reverse Calendar Spreads
- Reverse Ratio Spread (Backspread)
Chapter 14 – Diagonalizing a Spread
- The Diagonal Bull Spread
- Owning a Call for “Free”
- Diagonal Backspreads
- Call Option Summary
Part III – Put Option Strategies
Chapter 15 – Put Option Basics
- Put Strategies
- Pricing Put Options
- The Effect of Dividends on Put Option Premiums
- Exercise and Assignment
- Conversion
Chapter 16 – Put Option Buying
- Put Buying versus Short Sale
- Selecting Which Put to Buy
- Ranking Prospective Put Purchases
- Follow-Up Action
- Loss-Limiting Action
- Equivalent Positions
Chapter 17 – Put Buying in Conjunction with Common Stock Ownership
- Which Put to Buy
- Tax Considerations
- Put Buyins As Protection for the Covered Call Writer
- No-Cost Collars
Chapter 18 – Buying Puts in Conjunction with Call Purchases
- Straddle Buying
- Selecting a Straddle Buy
- Follow-Up Action
- Buying a Strangle
Chapter 19 – The Sale of a Put
- The Uncovered Put Sale
- Follow-Up Action
- Evaluating a Naked Put Write
- Buying Stock below Its Market Price
- The Covered Put Sale
- Ratio Put Writing
Chapter 20 – The Sale of a Straddle
- The Covered Straddle Write
- The Uncovered Straddle Write
- Selecting a Straddle Write
- Follow-Up Action
- Equivalent Stock Position Follow-Up
- Starting Out with the Protection in Place
- Strangle (Combination) Writing
- Further Comments on Uncovered Straddle and Strangle Writing
Chapter 21 – Synthetic Stock Positions Created by Puts and Calls
- Synthetic Long Stock
- Synthetic Short Sale
- Splitting the Strikes
- Summary
Chapter 22 – Basic Put Spreads
- Bear Spread
- Bull Spread
- Calendar Spread
Chapter 23 – Spreads Combining Calls & Puts
- The Butterfly Spread
- Combining an Option Purchase and a Spread
- A Simple Follow-Up Action for Bull or Bear Spreads
- Three Useful but Complex Strategies
- Selecting the Spreads
- Summary
Chapter 24 – Ratio Spreads Using Puts
- The Ratio Put Spread
- Using Deltas
- The Ratio Put Calendar Spread
- A Logical Extension (The Ratio Calendar Combination)
- Put Option Summary
Chapter 25 – LEAPS
- The Basics
- Pricing LEAPS
- Comparing LEAPS and Short-Term Options
- LEAPS Strategies
- Speculative Option Buying with LEAPS
- Selling LEAPS
- Spreads Using LEAPS
- Summary
Part IV – Additional Considerations
Chapter 26 – Buying Options and Treasury Bills
- How the Treasury Bill/Option Strategy Operates
- Summary
Chapter 27 – Arbitrage
- Basic Put and Call Arbitrage (“Discounting”)
- Dividend Arbitrage
- Conversions and Reversals
- More on Carrying Costs
- Back to Conversions and Reversals
- Risks in Conversions and Reversals
- Summary of Conversion Arbitrage
- The “Interest Play”
- The Box Spread
- Variations on Equivalence Arbitrage
- The Effects of Arbitrage
- Risk Arbitrage Using Options
- Pairs Trading
- Facilitation (Block Positioning)
Chapter 28 – Mathematical Applications
- The Black-Scholes Model
- Expected Return
- Applying the Calculations to Strategy Decisions
- Facilitation or Institutional Block Positions
- Aiding in Follow-Up Action
- Implementation
- Summary
Part V – Index Options and Futures
Chapter 29 – Introduction to Index Option Products and Futures
- Indices
- Cash-Based Options
- Futures
- Options on Index Futures
- Standard Options Strategies Using Index Options
- Put-Call Ratio
- Summary
Chapter 30 – Stock Index Hedging Strategies
- Market Baskets
- Program Trading
- Index Arbitrage
- Follow-Up Strategies
- Market Basket Risk
- Impact on the Stock Market
- Simulating an Index
- Trading the Tracking Error
- Summary
Chapter 31 – Index Spreading
- Inter-Index Spreading
- Summary
Chapter 32 – Structured Products
- Part I: “Riskless” Ownership of A Stock or Index
- The “Structure” of a Structured Product
- Cash Value
- The Cost of the Imbedded Call Option
- Price Behavior Prior to Maturity
- SIS
- Computing the Value of the Imbedded Call When the Underlying Is Trading at a Discount
- The Adjustment Factor
- Other Constructs
- Option Strategies Involving Structured Products
- Lists of Structured Products
- Part II: Pructs Designed to Provide “Income”
- PERCS
- Call Feature
- A PERCS Is a Covered Call Write
- Price Behavior
- PERCS Strategies
- PERCS Summary
- Other Structured Products
- Structure Product Summary
Chapter 33 – Mathematical Considerations for Index Products
- Arbitrage
- Mathematical Applications
Chapter 34 – Futures and Futures Options
- Futures Contracts
- Options on Futures
- Futures Option Trading Strategies
- Commonplace Mispricing Strategies
- Summary
Chapter 35 – Futures Option Strategies for Futures Spreads
- Futures Spreads
- Using Futures Options in Futures Spreads
- Summary
Part VI – Measuring and Trading Volatility
Chapter 36 – The Basics of Volatility Trading
- Definitions of Volatility
- Another Approach: GARCH
- Moving Averages
- Implied Volatility
- The Volatility of Volatility
- Volatility Trading
- Why Does Volatility Reach Extremes?
- Summary
Chapter 37 – How Volatility Affect Popular Strategies
- Vega
- Implied Volatility and Delta
- Effects on Neutrality
- Position Vega
- Outright Option Purchases and Sales
- Time Value Premium is a Misnomer
- Volatility and the Put Option
- Straddle or Strangle Buying and Selling
- Call Bull Spreads
- Vertical Put Spreads
- Put Bear Spreads
- Calendar Spreads
- Ratio Spreads and Backspreads
- Summary
Chapter 38 – Distribution of Stock Prices
- Misconceptions about Volatility
- Volatility Buyer’s Rule!
- The Distribution of Stock Prices
- What This Means for Option Traders
- Stock Price Distribution Summary
- The Pricing of Options
- The Probability of Stock Price Movement
- Expected Return
- Summary
Chapter 39 – Volatility Trading Techniques
- Two Ways Volatility Predictions Can Be Wrong
- Trading the Volatility Prediction
- Trading the Volatility Skew
- Volatility Trading Summary
Chapter 40 – Advanced Concepts
- Neutrality
- The “Greeks”
- Strategy Considerations: Using the “Greeks”
- Advanced Mathematical Concepts
- Summary
Chapter 41 – Taxes
- History
- Basic Tax Treatment
- Exercise and Assignment
- Special Tax Problems
- Summary
- Tax Planning Strategies for Equity Options
- Summary
Chapter 42 – The Best Strategy?
- General Concepts: Market Attitude and Equivalent Positions
- What Is Best for Me Might Not Be Best For you
- Mathematical Ranking
- Summary
- Postscript
Part VII – Appendices
- Appendix A – Strategy Summary
- Appendix B – Equivalent Positions
- Appendix C – Formulae
- Appendix D – Graphs
- Appendix E – Qualified Covered Calls
- Glossary
- Index
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