The Rookie's Guide to Options; 2nd Edition: The Beginner's Handbook of Trading Equity Options

488 Pages·2014·2.72 MB·English

by  Mark D Wolfinger

The Rookie’s Guide to Options
nd
2 Edition
2nd Edition
nd
2
Edition
Options for Rookies Books: Evanston, IL
Copyright © 2013 by Mark D Wolfinger.
All rights reserved
Published by Options for Rookies
Books, Evanston IL
No part of this book may be reproduced
or transmitted in any form or by any
means, electronic or mechanical,
including photocopying, recording, or by
any information storage and retrieval
system, except as permitted under
Section 107 or 108 of the 1976 United
States Copyright Act., without
permission in writing from the publisher
and the copyright holder. Requests to the
publisher for permission should be
addressed to Mark D Wolfinger; 1717
Dobson Street; Evanston, IL 60202
In the publication of this book, every
effort has been made to offer the most
current, correct and clearly expressed
information possible. Nonetheless,
inadvertent errors can occur, and rules
and regulations governing personal
finance and investing often change. The
advice and strategies contained herein
may not be suitable for your situation,
and there is a risk of loss when trading
options, stocks, commodity futures, and
foreign exchange products. Neither the
publisher nor author shall be liable for
any loss of profit or any other
commercial damage, including but not
limited to special, incidental,
consequential, or other damages, that is
incurred as a consequence of the use and
application, directly or indirectly, of any
information presented in this book. If
legal, tax advice or other expert
assistance are required, the services of a
professional should be sought.
ASIN:
To Penny
Preface to 2nd Edition
Five years after publication of the first edition, it is time to revise and expand
The Rookie’s Guide to Options. I hope the revisions will make the experience of
learning about options more efficient and enjoyable. Several discussions include
additional clarification and detail. Some sections are brand new, offering insight
into areas previously not explored.
There are two new chapters. The first (Chapter 21) introduces another useful
option strategy, the calendar spread. The other (Chapter 22) provides advice on
how the rookie trader can avoid mistakes when exercising options.
Even the look is new. The single column format makes the book easier to read
and some material has been moved to the back of the book as Appendices.
Partnership
Your options education is a partnership. My job is to provide the necessary
information and guide you through the process of learning and understanding
the concepts. Your job is to devote the required time and effort. Your task is to be
patient. Learn first—and trade later. Traders do not find success by memorizing
rules. It is necessary to develop a solid understanding of how options work.
Where does a rookie’s education end?
You will learn about topics such as volatility and spread trading. For reasons that
are beyond my understanding, some option educators consider these to be
‘advanced’ topics. I consider them as necessary at all levels. Trading without a
good understanding of these topics is similar to a jockey riding a racehorse with
20 extra pounds of dead weight in the saddlebags. Volatility plays a major role in
the pricing of options in the marketplace and in strategy selection..
The discussion on ‘the Greeks’ is in the ‘beyond the basics’ section.
Nevertheless, this is another so-called advanced concept that is far too basic and
far too important to be ignored by newer traders. All traders—stocks, options,
currencies, bonds etc. —must manage risk successfully to avoid failure. Make no
mistake: trading requires skill and planning. Those who ignore risk management
are likely to fail. The Greeks serve a single purpose: to measure risk. If any
single risk parameter of any position makes you feel uncomfortable, it is easy to
alleviate that specific risk. This ability is unique to options and it is by using the
Greeks that such risk is managed. Do not be concerned if math is not your strong
point because only simple arithmetic is needed when using the Greeks. By
understanding how positions earn/lose money it is possible to manage risk
intelligently.
Thank you to each reader who offered praise, submitted questions, or
suggested changes for the first edition. Your input is always appreciated.
Send e-mail to rookies (at) OptionsForRookies (dot)com.
Welcome to the 2013 edition of The Rookie’s Guide to Options.
Good trading!
Mark Wolfinger
Evanston, IL
May 2013
Updated Aug 2014