Your Options Handbook

JARED A. LEVY got his start trading as an options market maker and specialist in the pits of the Philadelphia and American Stock Exchanges in the '90s. Now as an exclusive CNBC contributor, he offers his commentary to the world as part of CNBC's Fast Money team and appears on several programs throughout the network. Jared is also featured and quoted in numerous industry publications both online and in print. He has been featured on Bloomberg, Fox, and several other radio and TV networks over the years. In 2006, he won an Emmy for his daily video, "Trader Cast." More recently, he served as the Senior Derivatives Specialist for PEAK6 Investments, L.P., and is currently an editor for Taipan Publishing Group.

• Foreword xiPreface xvAcknowledgments xxviiCHAPTER 1 Market Basics and Market Mechanics: What Is Going On and How Does It All Work? 1The Markets 1Sectors and Industries 9ETFs—A Different Kind of Investment 12Final Thoughts 16CHAPTER 2 Data That Moves the Markets: The First Step in Your Analysis 17Data and Sentiment 18Economists, Predictions, and Indicators 18Economic Indicators 21Key Indicators to Watch 27Final Thoughts 43CHAPTER 3 Fundamental and Technical Stock Analysis and Tools: The Second Step in Your Analysis 45Introduction to Fundamental Analysis 46Digesting the News 57Cheap versus Value 61Mergers and Acquisitions for the Everyday Options Trader 64The Wisdom (or Lack Thereof) of Crowds 65Trading Tactics and Technical Analysis 67Plans of Attack 93New Trader Tips 101Top 10 Things Professionals Do That the Average Retail Trader Doesn’t 104Final Thoughts 106CHAPTER 4 Options Basics: Techniques and Fundamentals to Master before Applying Any Options Strategy 107The Oracle of Omaha Did It, Why Can’t I? 111The Basics 114Trading Options—Order Types 122Options Expiration in Detail 126Exercise and Assignment 128When Should You Exercise an Option Early? 132What Is Triple Witching? (Or Quadruple Witching) 134Final Thoughts 137CHAPTER 5 The Greeks: The Forces That Influence Options’ Prices 139Delta 139Final Thoughts 156CHAPTER 6 Strategy: The Basic Options Trades 159Basic Single Options Strategies 160The Long Call 160Covered Call (Buy-Write) 171Buy-Write versus Covered Call 175Long Put 181Basic Stock and Options Spread 195Final Thoughts 208CHAPTER 7 Strategy: The Basic Spread Trades 209Vertical Spreads in Depth 209The Four Basic Vertical Spreads—Basic Characteristics and Behavior 214Credit Spreads versus Debit Spreads 216Credit Vertical Spreads 219Debit Vertical Spreads 236Buying a Put Spread (Bear Put Spread) 237Buying a Call Spread (Bull Call Spread) 242Market Direction Neutral Spread Strategies 257Final Thoughts 271CHAPTER 8 Strategy: The Advanced Option Spreads 273Market Neutral, Volatility, and Earnings Spread Strategies 273Butterflies versus Condors 281Iron Spreads 285Iron Butterfly versus Iron Condor 286Final Thoughts 309CHAPTER 9 Advanced Concepts 311Put-Call Parity, Interest Rates, Dividends, and Forwards 312Synthetics and More on Put-Call Parity 316Final Thoughts 336CHAPTER 10 A Revolutionary Approach to the Mind Games of the Markets:Understand Why You Need Emotions to Trade Well 337Trading Is Like Weather Forecasting 338What Is Psych Cap? 345Strategies and Tactics for Large Psych Cap Balances 352About the Contributor 359CHAPTER 11 Turning Your Trading into a Business 361Learning the Dollar 362Education 362The Formative Process 363Tips and Formulas for Budgetary Success 364Setting Up a Legal Entity 366Guidelines, Indicators, and Birds of Prey 371Final Thoughts 381About the Contributor 381Notes 383About the Author 389Index 391