INDEX

strategy, 73–74 A synthetic, 107–109 Altria (MO), 4 trading tip, 75, 76 Apple (AAPL), 4–5, 26, 95–97, 121, risk vs. reward of trade, 85 128–130, 153, 158–159, selling, 79–80 162–164, 168–169, 182, short, 80–82, 109–110, 158–159, 212–213 162–164 At-the-money (ATM), 62 exiting, 82 Automatic liquidation, 38 Greeks, 82 225 spread, 162–164 strategy, 81 synthetic, 109–110 B time decay with, 80 Backwardation, 123–124 time tip, 82 Beta, 52–53 using bearishly, 75–76 Botta Capital Management, 2–3, 26 time tip, 76 Brokerage account, 12 Chicago Board Options Exchange (CBOE), Butterflies, 146–150 xiv­–xv, 3–4, 120, 122–124 long call, 146–148 Market Volatility Index (VIX), 120, Greeks, 147 122–124 long put, 148–150 Condors, 150–153, 171–174 Greeks, 149 long, 152–153 Greeks, 152 short, 150–152, 173–174 COPYRIGHTEDGreeks, MATERIAL 151 C short iron, 171–172 Confidence Scale, 185–188, 211–212 Call options, 57–59, 60, 73–87 Contango, 123–124 breakeven on trade, 86 Covered call, 92–94 long, 73–76, 107–109, 156–157, 174–175, 161–162 butterfly, 174–175 exiting, 76 D Greeks, 75 Delta, 67–68 spread, 161–162 Demo account. See Simulated account

bindex.indd 225 6/21/2013 3:06:34 PM Derivatives, 57 theta, 69–70 Designated primary market makers vega, 70–71 (DPMs), 26 Dow theory, 44 H Hedge, 89–99, 131–132 E vs. speculation, 131–132 Electronic Eye software, 214 using options for, 89–99 Elliott Wave theory, 44 American dream, 90 Exchange Traded Fund for Gold (GLD) covered call, 92–94 example, 60–61 insurance protection, 91–92 Expiration, managing trades on, zero-cost collar, 95–97 155–179 Hedge funds, 28–29 long call, 156–157 HINCRIBBIT Trading Plan, 205–216 butterfly, 174–175 calendars and advanced topics, 210 spread, 161–162 chart, 207 long put, 159 Confidence Scale, 211–212 butterfly, 176–177 historical volatility, 205–206 spread, 164–165 implied volatility, 206 long straddle, 166–167 measured move target, 206–207 long strangle, 168–169 risk vs. reward, breakeven, time, and target, short call, 158–159 208–210 spread, 162–164 trading for a living, 210 short condor, 173–174 tricks and tips, 212–215 short iron condor, 171–172 Historical volatility, 118, 205–206 short put, 160–161 226 spread, 165–166 short straddle, 167–168 short strangle, 170–171 I Expiration date, 58 Ichimoku Kinko Hyo Cloud, 42, 47–48, 76 INDEX Implied volatility, 51–55, 118–121, 206 In-the-money (ITM), 62 F Institutional traders, 29–30 Facebook (FB), 102–106, 108–113, 134, 156–157, 161–162, 166–167, 171–172, 174–175 J Flexibility, 130 Japanese candlestick charts, 47 Full-service brokers and options trading, 34 L G Leverage, 127–130 more uses of, 127–128 Gamma, 68–69 real-time example of, 128–130 Gap, 43–44 Liquidation, automatic, 38 General Electric (GE), 3–4, 114 Live Trading Room, xv–xvi, 6–7 Google (GOOG), 160–161, 165–166, 170–171 Greeks, 67–72 delta, 67–68 M gamma, 68–69 Magnets, 46 rho, 70 Market makers, 25–31

bindex.indd 226 6/21/2013 3:06:34 PM death of, 26–27 definitions, 60, 62 designated primary (DPM), 26 at-the-money (ATM), 62 hedge funds, 28–29 in-the-money (ITM), 62 institutional traders, 29–30 out-of-the-money (OTM), 62 options exchanges, 30–31 derivatives, 57 retail traders, 27–28 Exchange Traded Fund for Gold (GLD) Market sentiment, 51–55 example, 60–61 beta, 52–53 premium, 61 making money in any direction, pricing, 62–63 51–52 underlying, 59 sitting on the sidelines, 53–54 Options brokers and platforms, 33–39 Margin, use of, 37–38 automatic liquidation, 38 Measured move target, 206–207 discount brokerage firms, 35–36 Microsoft (MSFT), 4, 5, 92–94, 159, fees, 37 164–165, 167–168, 173–174, full-service brokers and options 176–177 trading, 34 Moving averages, 45–46, 47 margin, use of, 37–38 40-week, 45–46 researching firms, 36 50-day, 45 Options exchanges, 30–31 disadvantages to, 47 Options strategies, complex, 132–133, 139–154 butterflies and condors, 146–153 long call butterfly, 146–148 N long condor, 152–153 Non-Blowout Trading Plan, 181–193 long put butterfly, 148–150 Confidence Scale, 185–188 short condor, 150–152 limiting exposure to percentage of total straddles and strangles, 139–146 book, 184–185 long strangle, 141–142 227

rating scale, 189–193 long straddle, 139–141 INDEX trading based on percentage of book, short straddle, 143–144 188–178 short strangle, 145–146 trading Pepsi (PEP), 181–183 Out-of-the-money (OTM), 62

O P OCRRBTT Trading Plan, 195–203 Paper trading. See Simulated account call and put volume, 197 Pin risk, 103 paper, how insiders read, 198 Potash (POT), 121 reading options paper, 196 Price charts, 42 story of, 195–196 Put options, 57–59, 61, 73–87 using, 199–201 breakeven on trade, 86 breakeven, 201 long puts, 76–79, 110–112, 159, chart, 200 164–165, 176–177 options volume vs. open interest, butterfly, 176–177 199–200 exiting, 79 reward, 200 Greeks, 78 risk, 200 spread, 164–165 target, 201 strategy, 77 time, 201 synthetic, 110–112 Opportunity cost, 14–15 risk vs. reward of trade, 85 OptionHacker, 186–187, 198–199 selling, 79–80 Options basics, 57–65 short, 80, 82–85, 160–161, calls and puts, 57–59 165–166

bindex.indd 227 6/21/2013 3:06:34 PM Put options (continued) exiting, 84 T Greeks, 84 Targets, 46 spread, 165–166 Technical trading, 41–49 strategy, 83–84 Dow theory, 44 time decay with, 80 Elliott Wave theory, 44 time tip, 84 gap, 43–44 trading tip, 85 Ichimoku Cloud, 47–48 using bullishly, 78 Japanese candlestick charts, 47 time tip, 79 magnets and targets, 46 trading tip, 78 moving averages, 45–46 40-week, 45–46, 47 50-day, 45 R disadvantages to, 47 relative strength, 46 Relative strength, 46 stochastic, 46 Retail traders, 27–28 support and resistance levels, 43 Rho, 70 Theta, 69–70 Risk control, 130 Trader, professional, 9–16 brokerage account, 12 challenges of being, 11 S perks of being, 10 setup, 13 Security timing tactics. See Technical trading sticking to a plan, 15 Simulated account, 19–20 trading expenses and opportunity cost, Speculation, options for, 131–132 14–15 Stochastic, 46 trading plan, 12–13 228 Straddles, 139–141, 143–144, 166–168 ups and downs of being, 11–12 long, 139–141, 166–167 Trading earnings. See HINCRIBBIT Greeks, 140 Trading Plan short, 143–144, 167–168 Trading as hobby vs. career, 17–23

INDEX Greeks, 144 amusement trading for, 17–18 Strangles, 141–142, 145–146, 168–171 becoming a professional, 21 long, 141–142, 168–169 defining goals, 22 Greeks, 142 moving from amateur to short, 145–146, 170–171 professional, 19 Greeks, 145 moving from simple to complex Strike price, 58 strategies, 20 Support and resistance levels, 43 moving from simulated account Synthetic options positions, 101–116 to real trading, 19–20 goal of, 107 options education, investing in, long call, 107–109 20–21 long put, 110–112 profits, enjoying, 18 long stocks, 101–105 Trader’s edge, 130–131 short call, 109–110 Trading journal, 20 short put, 112–114 Trading plan, sticking with, 133 short stocks, 105–106

bindex.indd 228 6/21/2013 3:06:34 PM V Y Vega, 70–71 Yahoo! (YHOO), 4, 5 Volatility, 117–125 advantages of, 121–122 basics, 117–118 Z CBOE’s VIX Index, 122–124 contango vs. backwardation, 123–124 Zero-cost collar, 95–97 historical, 118 implied, 118–121

229 INDEX

bindex.indd 229 6/21/2013 3:06:34 PM bindex.indd 230 6/21/2013 3:06:34 PM bindex.indd 231 6/21/2013 3:06:34 PM bindex.indd 232 6/21/2013 3:06:34 PM bindex.indd 233 6/21/2013 3:06:34 PM bindex.indd 234 6/21/2013 3:06:34 PM bindex.indd 235 6/21/2013 3:06:34 PM bindex.indd 236 6/21/2013 3:06:34 PM