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Option Spread Trading: A Comprehensive Guide to Strategies and Tactics PDF

289 Pages·2011·2.82 MB·English
by  Rhoads
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P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford i P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Option Spread Trading i P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Foundedin1807,JohnWiley&Sonsistheoldestindependentpublishing companyintheUnitedStates.WithofficesinNorthAmerica,Europe,Aus- tralia and Asia, Wiley is globally committed to developing and marketing printandelectronicproductsandservicesforourcustomers’professional andpersonalknowledgeandunderstanding. TheWileyTradingseriesfeaturesbooksbytraderswhohavesurvived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide theadviceandstrategiesneededtoprospertodayandwellintothefuture. For a list of available titles, please visit our Web site at www.Wiley Finance.com. ii P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Option Spread Trading A Comprehensive Guide to Strategies and Tactics RUSSELL RHOADS, CFA JohnWiley&Sons,Inc. iii P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Copyright(cid:1)C 2011byRussellRhoads.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,oroth- erwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyrightAct, withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthroughpayment oftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222RosewoodDrive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. RequeststothePublisherforpermissionshouldbeaddressedtothePermissionsDepartment, JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030,(201)748-6011,fax(201)748- 6008, or online at http://www.wiley.com/go/permissions. LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbest effortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespecttothe accuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategiescon- tainedhereinmaynotbesuitableforyoursituation.Youshouldconsultwithaprofessional whereappropriate.Neitherthepublishernorauthorshallbeliableforanylossofprofitorany othercommercialdamages,includingbutnotlimitedtospecial,incidental,consequential,or otherdamages. Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside theUnitedStatesat(317)572-3993orfax(317)572-4002. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts, visit our web site at www.wiley.com. LibraryofCongressCataloging-in-PublicationData: Rhoads,Russell,1967– Optionspreadtrading:acomprehensiveguidetostrategiesandtactics/RussellRhoads. p.cm.–(Wileytradingseries) Includesindex. ISBN978-0-470-61898-1(hardback);ISBN978-0-470-94432-5(ebk); ISBN978-0-470-94431-8(ebk);ISBN978-1-118-018934(ebk) 1.Options(Finance) I.Title. HG6024.A3R522011 332.63(cid:2)2283–dc22 2010032261 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 iv P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Thisworkisdedicatedtothethreemostimportantpeopleinmy life—mywifeMerribethAnnRhoadsanddaughtersMargaretSusan andEmersonArlene.Youaremypartner,firstfriend,andlittlepal. v P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford vi P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford Contents Preface xi Acknowledgments xiii CHAPTER 1 Essential Option Knowledge 1 TheOptionBasics 1 In-At-OutoftheMoney 5 IntrinsicandTimeValue 6 SpreadBasics 8 TheGreeks 9 PayoffTablesandDiagrams 10 OptionPricingCalculators 12 CHAPTER 2 Spreads Using an Underlying Security 15 CoveredCall 15 CoveredCallUsingLEAPS(cid:1)R 22 SystematicCoveredCallStrategies 25 Cash-SecuredPut 26 SystematicCash-SecuredPut 31 ProtectivePut 32 TheCollar 33 CHAPTER 3 Synthetic Positions 37 Put-CallParity 39 SyntheticLongPositions 40 SyntheticShortPositions 44 vii P1:JYS fm JWBT391-Russell October28,2010 14:0 Printer:CourierWestford viii CONTENTS ArbitrageinPut-CallParity 50 IndividualsUsingPut-CallParity 52 CHAPTER 4 The Greeks 55 Price-RelatedGreeks 55 Time-RelatedGreek 61 Volatility-RelatedGreek 65 InterestRate-RelatedGreek 67 Conclusion 69 CHAPTER 5 Straddles 71 LongStraddleMechanics 72 ShortStraddle 81 CHAPTER 6 Strangles 89 LongStrangleMechanics 89 ShortStrangleMechanics 98 CHAPTER 7 Bull Spreads 107 BullPutSpread 107 BullCallSpread 114 CHAPTER 8 Bear Spreads 121 BearCallSpread 121 BearPutSpread 127 CHAPTER 9 Butterfly Spreads 135 IntroductiontoButterflySpreads 136 LongCallButterfly 136 LongPutButterfly 139 IronButterfly 142 ShortStraddleComparison 146 ShortCallButterfly 149

Description:
A practical guide to unlocking the power of option spreads. When dealing with option spreads your looking to purchase one option in conjunction with the sale of another option. If managed properly, these spreads can provide experienced investors with the potential for large returns without undertaki
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