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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Little Books. Big Profits
- Sprache: Englisch
Master profitable option trading with the techniques of the pros. In The Little Book of Trading Options Like the Pros: Learn How to Become the House, a team of veteran options and derivatives traders delivers an expert account of how to master the zero-sum game of options trading. In the book you'll learn how to 'become the house,' consistently making a small amount of money -- on average -- on each trade, in a similar fashion to a casino in Las Vegas or an insurance company selling insurance policies. The authors explain how to skip the painful part of the steep options learning curve, showing you how to avoid the most common pitfalls, and become a profitable trader quickly. You'll find: * A one-stop resource for everyone looking to become a pro-level trader, including a primer on options without fancy math, engaging anecdotes and lots of invaluable institutional knowledge * A review of the full options ecosystem, and how to position yourself with the odds in your favor, to be a profitable player in this complex trading landscape * A deep dive into the same strategies and techniques used by professional options traders, without the need for finance degrees or hard-to-obtain experience * A clear roadmap of how to take the knowledge in the book and turn it into a practical and profitable trading endeavor Perfect for inspiring day traders, The Little Book of Trading Options Like the Pros is also a must-read book for anyone interested in investing or trading in modern financial markets.
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Seitenzahl: 124
Veröffentlichungsjahr: 2024
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Dedication
Preface
Acknowledgments
Chapter One: Trading Options: Allure vs. Reality
The Retail Option Explosion
The Natural Biases of New Traders
The Amateur Trap
An Intuitive Conclusion
Chapter Two: The Barebones Option Primer
Option Basics
Options in Time
Breaking Down the Option Premium
Combining Options
Real-World Examples
Note
Chapter Three: Become the House
The Broader Option Ecosystem
Our Core Trade
Strike Selection
Expiry Selection
Equity ETF Puts for the Win
Note
Chapter Four: Risk Management
Moving Beyond “Sell and Hold”
Stop Losses
Profit Taking
Rolling Positions
Note
Chapter Five: Building a Portfolio
Motivation
Expanding Our Universe
A “Commonsense” Portfolio
Optimized Portfolios
Setting Risk Exposures
Chapter Six: From Theory to Practice
Option Screener
Trading
The First Six Months
Beware Assignment
Behavioral Biases of Sellers
Parting Words
Note
Bibliography
End User License Agreement
List of Illustrations
Chapter 1
Figure 1.1 Retail Options Trading Volume on Nasdaq Options Market and Nasdaq...
Figure 1.2 Human Perception of Probability at Various Levels of Known Probab...
Figure 1.3 Percent of Worthless 4-Week SPY Puts at Expiry at Various Startin...
Chapter 2
Figure 2.1 Option Payoff Profile at Expiry
Figure 2.2 Option Payoff Profile Before Expiry
Figure 2.3 Call Option Delta and Gamma
Figure 2.4 Summing Option Payoffs
Chapter 3
Figure 3.1 Selling an OTM SPY Put Spread
Figure 3.2 2W 90–96 SPY Put Spread Strategy; January 1, 2013 – August 31, 20...
Figure 3.3 Primary Selection Criteria for Selling SPY Put Spreads (2w); Janu...
Figure 3.4 Mean P&L for Different Expiries—Strikes Set to Match 2w 90–96 Vol...
Figure 3.5 Time Decay of a Put Option
Figure 3.6 Theta of a Put Option
Chapter 4
Figure 4.1 2W 90–96 SPY Put Spread Strategy; January 1, 2013 – August 31, 20...
Figure 4.2 Stop Loss Impact on 2W 90–96 SPY Put Spread Strategy; January 1, ...
Figure 4.3 Profit Taking Effects on Core SPY 2W 90–96 Put Spread Strategy; J...
Figure 4.4 Profit Taking Effects on Core SPY 2W 90–96 Put Spread Strategy wi...
Figure 4.5 Reselling at Different Times to Next Sell: Effect on Core SPY 2W ...
Figure 4.6 Option Price as a Function of IV
Chapter 5
Figure 5.1 Premium Taken in Each Week Selling 2W SPY 90–96 Put Spreads with ...
Figure 5.2 Risk/Return Statistics for Different Spread Writing Strategies wi...
Figure 5.3 Selection Framework for Selling SPY Call Spreads (2w); January 1,...
Figure 5.4 SPY Implied vs. Realized Volatility, 1996–2023
Figure 5.5 Spread Losses Every Time SPY Trade Loses - 100bps Max Loss; Janua...
Figure 5.6 Commonsense Portfolio: 50% 2W 90–96 SPY Put Spread, 25% 2W 94–97 ...
Figure 5.7 Commonsense Portfolio Compared to Portfolios with Maximized Retur...
Figure 5.8 Efficient Frontier
Figure 5.9 Rolling 1-Year Correlation of SPY to GLD and TLT
Figure 5.10 Single-Day Scenario Analysis: Core SPY Trade Positions vs. SPY
Chapter 6
Figure 6.1 Option Screener, Risking 100bps, Minimum Spread Width of 2%
Figure 6.2 Order Entry
Figure 6.3 Order Confirmation
Figure 6.4 Payoff Profile
Figure 6.5 Market Depth
Guide
Cover
Title Page
Copyright
Dedication
Preface
Acknowledgments
Table of Contents
Begin Reading
Bibliography
End User License Agreement
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Little Book Big Profits Series
In the Little Book series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrow’s new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today.
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The Little Book of Common Sense Investing by John C. Bogle
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The Little Book of Big Dividends by Charles B. Carlson
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The Little Book of Trading by Michael W. Covel
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The Little Book of Economics by Greg Ip
The Little Book of Sideways Markets by Vitaliy N. Katsenelson
The Little Book of Big Profits from Small Stocks by Hilary Kramer
The Little Book of Currency Trading by Kathy Lien
The Little Book of Bull's Eye Investing by John Mauldin
The Little Book of Emerging Markets by Mark Mobius
The Little Book of Behavioral Investing by James Montier
The Little Book of Hedge Funds by Anthony Scaramucci
The Little Book of Bull Moves by Peter D. Schiff
The Little Book of Alternative Investments by Stein and DeMuth
The Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth
The Little Book of Commodity Investing by John R. Stephenson
The Little Book of the Shrinking Dollar by Addison Wiggin
The Little Book of Stock Market Profits by Mitch Zacks
The Little Book of Safe Money by Jason Zweig
The Little Book of Zen Money by The Seven Dollar Millionaire
The Little Book of Picking Top Stocks by Martin S. Fridson
The Little Book of Robo Investing by Elizabeth MacBride and Quian Liu
THE LITTLE BOOK OF TRADING OPTIONS LIKE THE PROS
Learn How to Become the House
DAVID BERNS
MICHAEL GREEN
Copyright © 2024 by David Berns and Michael Green. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
ISBN 9781394238958 (Cloth)ISBN 9781394238965 (ePub)ISBN 9781394238972 (ePDF)
Cover Design: Paul McCarthy
For my Carolee & Henry, who bring magic to us all.
—DB
To Jennifer, Ryan, Ella & Gavin.The journey has been the reward.
—MG
Preface
RETAIL OPTIONS TRADING HAS exploded in popularity over the past few years. But options are complex, and trading options can quickly become a black hole of losses. The goal of this book is to show new options traders how to quickly pivot from naïve strategies with a high probability of loss to a winning strategy deployed by professional options traders. After a quick review of the option ecosystem and the basics of options, we spend most of the book presenting a proven options trading strategy. This strategy is a bread-and-butter trade from the institutional world of hedge funds and market makers, and we show you how to execute it at home. We have also decided to support readers of this book beyond just the words found here, by making the option screener reviewed in this book available for free at www.tradingoptionslikethepros.com.
This book is intended for nonfinance professionals. We have avoided the use of advanced mathematics to keep this accessible for all. We have thrown in a few “Adult Swim” sections for those who want to go a bit deeper on topics, but these are not required reading, so feel free to skip these if you want to keep things light.
Let's now quickly review what will be covered in each chapter.
Chapter 1. Trading Options: Allure vs. Reality. We review the recent rise of retail options trading, which has boomed on the heels of easy access to trading and an expansive social media ecosystem for amateur traders. We then illustrate how the combined human biases of loss aversion and overestimation of low-probability events leads novice traders into buying cheap options. We then show that most cheap options expire worthless, leaving amateur traders destined to perform poorly. This discussion lays the groundwork for the winning option strategy we will cover in this book: selling cheap options for small yet consistent wins.
Chapter 2. The Barebones Option Primer. We begin with a review of the defining characteristics of an option: calls versus puts, the underlying asset, strike, and expiry. We review the basic payoff structure of an option as a function of the underlying price at contract expiry. We bring time into the equation, showing how the value of an option contract evolves into expiry, which then forces us to break down option prices into intrinsic and extrinsic value components. The last part of our primer shows readers how to create spreads, where we simultaneously buy and sell options. Finally, we walk readers through a series of real-world examples to help solidify the core knowledge needed for the remainder of the book.
Chapter 3. Become the House. In this chapter we shift focus from foundational understanding of options to strategic application, specifically emphasizing the advantages of selling options over buying them. The chapter begins with a review of the option ecosystem beyond the novice traders highlighted in Chapter 1, showcasing the demand from both amateur and professional investors for different types of options, and creating opportunities for option sellers in various market segments. We then explore the analogy of option sellers acting as “the house” in three different business models: a casino, an insurance company, and a bank. This analogy helps illustrate how selling options can be likened to these businesses, each with its own risk-and-reward profile.
The core of the chapter then introduces our primary strategy: selling equity put spreads. We delve into why this strategy is advantageous, backed by empirical data highlighting strong profitability, high win rates, and limited losses. The rationale behind the specific strike selection and the 2-week expiry period is explained in detail, balancing the goal of maximizing returns while minimizing risk and operational challenges. We conclude by showing real-world applications of the strategy through a series of examples and empirical data, setting the stage for more advanced concepts and strategies in subsequent chapters.
Chapter 4. Risk Management.
