The Complete Options Trader (eBook)

Michael C. Thomsett has been writing for a living since 1978 and has published more than 90 books. These include 12 options books. His bestselling Getting Started in Options has been published in nine editions and sold more than 300,000 copies. He also has developed and presented options webinars, and coaches on a live trading room every day and is a frequent speaker at trade shows and investment conventions. He blogs on his website, https://thomsettsguide.com/ Seeking Alpha, Options Money Maker, and social media.

Contents 5
List of Figures 6
List of Tables 8
Introduction 9
Market Overview 13
The History of Options Trading 13
Basics of Options—Standardized Terms 19
Types: Calls and Puts 19
The Underlying Security 20
Strike Price 22
Expiration 22
The Option Premium and Its Components 23
Time Value 23
Volatility 23
Intrinsic Value 26
Strategy Ranges 28
Single-Option Speculative Strategies 28
Covered Calls 29
Spreads 30
Straddles 30
Synthetic Positions 31
Market Risks 33
Market and Volatility Risk 35
Market Risk of Option Trading 35
Variation of Option Strategy Risk Levels 38
Covered Call Risks 39
Lost Opportunity Risk 40
Moderate and Neutral Strategies 41
Inflation and Tax Risk 43
Inflation Risk 43
Tax Risk 44
The Double Hit—Inflation and Taxes 46
Portfolio Risks 47
Collateral and Margin Risk 48
Liquidity Risk 49
Knowledge and Experience Risk 50
Diversification and Asset Allocation Risk 52
Other Forms of Risk 53
Leverage Risk 53
Alpha and Beta Risk 54
Fundamental Risk 55
Acquisition and Merger Risk 55
Reputation or Bankruptcy Risk 56
Earnings Surprises 57
Confirmation Bias Risk 59
Option Strategies 62
Option Glossary 144
Elements of Value 205
Proximity and Price 206
Expiration and Option Valuation 209
Interest and Dividends 212
Stock Selection as Part of the Option Value Equation 213
Basic Investment Value of Stock 214
Selection of Appropriate Option Positions 215
Return Calculations 219
Expected Return and Pricing Models 219
Annualized Return 221
Strike Selection for Covered Calls 224
Return If Exercised or Unchanged 226
Return If Closed 229
Options and Stock Selection 233
Diversification by Risk Profile 234
Fundamental Selection Indicators 236
Technical Selection Indicators 239
Option Taxation 242
Capital Gains and Losses 242
Qualified and Unqualified Covered Calls 244
Rules for Offsetting Positions 245
Strategic Considerations 246
Index 248