... become traders in the stock, futures, and options markets is
to attain financial rewards. Stories about the large sums of money to
be made and the successes of the rich and famous inspire a desire to
achieve ... collecting tools to beat the market consistently. Successful
options traders first learn to walk, then to run. Usually traders begin with
simplistic strategi...
... limited risk because the most you
stand to lose is the premium paid for the option plus commissions paid to
the broker.
52
THE OPTIONS COURSE
ccc_fontanills_ch3_42-75.qxd 12 /17 /04 4: 01 PM Page ... Never-
theless, expiration dates and cycles are important to understand. They set
the terms of the contract and spell the duration of the option holder s rights...
... sell
another call to offset your risk.
• The stock falls below the initial stock price but stays above
the breakeven: The long stock position starts to lose money, but
this loss is offset by the ... short strike: The short
call is assigned and exercised by the option holder. You can then
use the 10 0 shares from the original long stock position to satisfy
your obl...
... Curves 6
Asking the Right Question 9
Analyzing Risk: What Separates the Winners
from the Losers 11
Summary 18
Chapter 2 The Basics of Options 21
Option Definitions 21
Options on a Specific Security ... option strategies are best for
any given situation, and they fail to understand just what the
risk is before they make their trades.
Jay Kaeppel explains these issues i...
... AT 1
1
10 0 C AOO MT
1
1
10 0 P
AOO AA 1
1
10 5 C AOO MA
1
1
10 5 P
AOO AB 1
1
11 0 C AOO MB
1
1
11 0 P
AOO AC 1
1
11 5 C AOO MC
1
1
11 5 P
AOO AD 1
1
12 0 C AOO MD
1
1
12 0 P
AOW AE 1
1
12 5 C AOW ME
1
1
12 5 ... AOL MP
1
1 16 .25 P
AOL AQ 1
1 16 .875 C AOL MQ
1
1 16 .875 P
AOL AW 1
1
17 .5 C AOL MW
1
1
17 .5 P
AOL AR
1
1 18 .12 5 C AOL M...
... options traders should
combine the values of the Greeks used to create the optimal options
spread. The result will allow the trader to more accurately assess the risks
of any given options spread.
Understanding ... known as a
long synthetic straddle. Conversely, you can create a short synthetic
straddle by either purchasing 10 0 shares of stock and selling two ATM
calls o...
... that case, the loss is equal to the commissions paid for
the trade. On the other hand, if the stock falls sharply, the losses can be
substantial. The downside breakeven is equal to: higher strike ... belief the
stock was about to reverse course.
Straddles, Strangles, and Synthetics 2 31
ccc_fontanills_ch8 _18 7-233.qxd 12 /17 /04 4:32 PM Page 2 31
fly is derived from...
... calls to the upside and the short shares to the downside). Re-
member, as long as you use long options—puts or calls—it is a long
synthetic straddle.
I prefer to use ATM options because they have ... is selecting a stock
that has been in the news, whose volatility is high, and for which a type
skew exists (a type skew is when a volatility skew exists between the put
29...