The Little Book of Trading Options Like the Pros - David M. Berns - E-Book

The Little Book of Trading Options Like the Pros E-Book

David M. Berns

0,0
20,99 €

-100%
Sammeln Sie Punkte in unserem Gutscheinprogramm und kaufen Sie E-Books und Hörbücher mit bis zu 100% Rabatt.
Mehr erfahren.
Beschreibung

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.

Sie lesen das E-Book in den Legimi-Apps auf:

Android
iOS
von Legimi
zertifizierten E-Readern

Seitenzahl: 124

Veröffentlichungsjahr: 2024

Bewertungen
0,0
0
0
0
0
0
Mehr Informationen
Mehr Informationen
Legimi prüft nicht, ob Rezensionen von Nutzern stammen, die den betreffenden Titel tatsächlich gekauft oder gelesen/gehört haben. Wir entfernen aber gefälschte Rezensionen.



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

Pages

ii

iii

iv

v

xi

xii

xiii

xiv

xv

xvi

1

2

3

4

5

6

7

8

9

10

11

12

13

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

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.

Books in the Little Book series include:

The Little Book of Investing Like the Pros by Pearl and Rosenbaum

The Little Book That Still Beats the Market by Joel Greenblatt

The Little Book That Saves Your Assets by David M. Darst

The Little Book That Builds Wealth by Pat Dorsey

The Little Book That Makes You Rich by Louis Navellier

The Little Book of Common Sense Investing by John C. Bogle

The Little Book of Value Investing by Christopher Browne

The Little Book of Big Dividends by Charles B. Carlson

The Little Book of Main Street Money by Jonathan Clements

The Little Book of Trading by Michael W. Covel

The Little Book of Valuation by Aswath Damodaran

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.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permission.

Trademarks: Wiley and the Wiley logo are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc. is not associated with any product or vendor mentioned in this book.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic formats. For more information about Wiley products, visit our web site at www.wiley.com.

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.