Options for the Beginner and Beyond

Submitted by Book Library on 11 March, 2010 - 17:48

Brief, carefully paced lessons on options and trading strategies using verbal definitions and many trading examples for clarification. Each lesson builds on the one preceding it and explains options in plain English, from start to finish. Step-by-step coverage of controlling risk, protecting your investments -- even advanced strategies other introductory books ignore! Authored by Dr. W. Edward Olmstead, contributing editor to The Spear Report and editor of The Options Professor newsletter.

Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks is intended for people who are just starting to learn about options as well as for those who want to advance their basic knowledge to a higher level. Much of the material in this book has previously appeared in a series of articles written for The Options Professor, a monthly online newsletter about options trading, published by Independent Investor, Inc., Bloomfield, Connecticut. Some of the material was originally developed by the author for a course on options pricing theory taught at Northwestern University, Evanston, Illinois. The method of exposition in this book is primarily through example. The options concepts in each chapter are introduced and discussed in the form of example trades. Many of the examples are illustrated with risk graphs, which serve to reinforce the concepts of each strategy.

All of the trades presented in the book are taken from real situations, although the prices may have been altered slightly to simplify the presentation. In most of the examples, the real stock symbol has been replaced by the mythical XYZ or ZYX, so that the reader can focus on the discussion without any distraction related to an experience with the actual stock. In some examples, the real stock symbols have been used because it seemed particularly important to the discussion.

Positive Review of Book

I have taken hours of classes on how to trade options. I have read lots of books on how options work and how to trade them. I have traveled hundreds of miles and spent thousands of dollars to learn how to become a better options trader. This book is sooooo... good if I had read this book first I would have made more money, loss less money, and I could have gained 100% more value from all the other options training I have done. If you are looking at trading options this is your starting point! If you already trade options then use this book as a review, becasue it has some very lucid explinations e.g.Chapter 29 - IV (implied volatiltiy) and the Black Scholes model. Now this will not be the only options book that you will get, and it does not go into super detail depth like a Sheldon Natenberg, but it is easy to read, it gets directly to the point and it's relatively small compared to other options books. The chapters are written independently of one another, so you can skip through the book and read exactly what you want. So if you just want to know how a double diagonal works then you read that chapter and your done. Thank You Professor Olmstead!They need to rename you Uncle Option :)

Negative Review of Book

Trading in options by regular folks looking for big returns has been catching on and I am not sure why. Are they really trying to use options to alter the risk of their retirement portfolios - either lowering the risk to ensure the preservation of capital or to add volatility with the design of increasing returns? Probably not. The average person is probably acting as a speculator and placing bets. For the market, this kind of behavior is a good thing because it adds noise that allows the professionals greater opportunities to profit. Now, think about what that means. You know the old saying about sitting down and a poker table and if you can't spot the patsy that it's you? Remember, options are an area of the market where there are only winners and losers. These are instruments where one side wins and the other side loses. However, in the right hands they are very important and useful financial instruments.

This book is not a textbook on option theory, pricing, or how to use them in the context of lowering or increasing risk in a portfolio. It is a basic how to text for buying and selling options as speculative investments. The author, W. Edward Olmstead, is a math professor at Northwestern University and teaches a course in options. His experience with the topic shows because the text is clear, easy to read and to grasp. That is a fine accomplishment because learning how options work can be a mind bending experience for the first timer. Admittedly, he doesn't take the reader into pricing. Here, as an investor, you basically take the price given and make a decision. Of course, developing a position about what the price "should be" is what professional options investors do and if you are just licking your finger and sticking it into what you believe to be the financial breeze, well, just remember I warned you.

Olmstead organizes the book into three parts. The first explains the basic concepts of what options are and some ideas about buying and selling them. His notions of when to buy and sell and how to use the way options change their value throughout their "life" are quite interesting. It would be fascinating to find out how well they work in real life and if they did, why these abilities to gain aren't simply priced away by people trading against them.

Anyway, the second part goes into trading strategies and describes various kinds of spreads, collars, and so forth. Of course, these positions are geared towards fashioning risk for certain kinds of outcomes. They are not magic in themselves and are just as likely to end up worthless as any other set of options, but the downside and upside will be more specifically defined.

The third part contains special topics (including DAY TRADING with options - oh boy, talk about walking into a financial mind field wearing lead boots), he touches on pricing and volatility and delta neutral trading. An interesting book that can help the beginner get some idea about options and can help those itching to trade in them begin to do so. Just remember the old childhood saying that knowledge is when you know the stove is hot. Wisdom is what you have on your fingertips after you touch the hot stove.

Author Biography

Dr. W. Edward Olmstead is the editor of The Options Professor, one of the world’s leading newsletters on options trading. He is also an options analyst for Spear Capital Management. He has consulted on short-term trading strategies with a member company of the Chicago Mercantile Exchange.

Dr. Olmstead is Professor of Applied Mathematics in the McCormick School of Engineering and Applied Sciences at Northwestern University. He has taught courses that cover both the theory for options pricing and practical strategies for trading options. Dr. Olmstead has received several awards including an endowed chair for teaching excellence and has been praised by his colleagues as “the quintessential teacher in our midst.”

Table of Contents

  1. Section I: BasicConcepts
    • Introduction
      • Why Options?
      • The Basic Concept of Options
      • Major Differences Between Stocks and Options
      • Leverage
      • Time Limitation
      • Price Movement
      • Financial Risk
      • A Detailed Explanation of Options
      • The Option Contract
      • The Call Option
      • The Put Option
      • Comments
    • Option Selection
      • What Is a Cheap Option?
      • Selecting a Call
      • Overall Evaluation
      • Selecting a Put
    • Entering and Exiting Option Trades
      • Entering a Trade
      • Exiting a Trade
    • The Greeks
      • Delta
      • Computing the Delta of a Call Option
      • Application of the Delta
      • Computing the Delta of a Put Option
      • Theta
      • Gamma
      • Vega
      • Rho
    • Risk Graphs
      • Single Option Trade
      • Multiple Option Trade
      • Comments
    • LEAPS
      • Comments
    • Assignment Anxiety
      • Comments
      • Applications
    • Broker Selection
      • Types of Brokers
      • Commissions
      • Trading Platform
      • Margin and Trading Limitations
      • Live Broker Assistance
      • Comments
    • Miscellaneous Tips
      • Time Is Money
      • Trading with the Trend
      • Risk Capital for Options Trading
      • Tracking Trades
      • Anticipating Events
      • Real-Time Quotes
      • Market Orders with Options
      • Options Calculator
  2. Section II: TradingStrategies
    • Vertical Spreads
      • Debit Vertical Spreads
      • Bull Call Spread
      • Bear Put Spread
      • Comments
      • Credit Vertical Spreads
      • Bull Put Spread
      • Bear Call Spread
      • Comments
    • Comments
    • Calendar Spreads
      • The Rollout Maneuver
      • Comments
    • Volatility Skew Trades
      • Comments
      • Ratio Calendar Spread Trades
      • Comments
      • Deep-in-the-Money LEAPS Put Calendar Spreads
      • Diagonal Calendar Spread Trades
    • Covered Calls
      • An Idealized Trade
      • A Realistic Trade
      • Covered Call vs
      • Naked Put
      • Comments
    • Straddles and Strangles
      • The Straddle Trade
      • Comments
      • The Strangle Trade
    • Stock

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