Table of Contents Title Page Copyright Page Dedication Preface HOW TO USE THIS BOOK PREPARATION IS THE KEY Acknowledgements PART ONE - Learning the Fundamentals CHAPTER 1 - Getting Ready to Trade WHY TRADE OPTIONS? DEVELOPING A GAME PLAN WHAT IS AN OPTION? DEFINING KEY TERMS FINAL THOUGHTS CHAPTER 2 - Option Fundamentals OVERVIEW OPENING AND CLOSING POSITIONS OPTION BUYING OPTION SELLING SPREADS BID/ASK SPREAD OPTION CHAIN FINAL THOUGHTS CHAPTER 3 - What Determines an Option’s Price? OVERVIEW FACTORS AFFECTING OPTION PRICING FORECASTING OPTION PRICES FINAL THOUGHTS CHAPTER 4 - Tools of the Trade—Greeks OVERVIEW: GREEK BASICS POSITION GREEKS CONVERTING AN OPTION CHAIN TO GREEKS MORE ON DELTA FINAL THOUGHTS CHAPTER 5 - Buying versus Selling OVERVIEW COMPARING LONG AND SHORT OPTIONS OPTION BUYING OPTION SELLING BULLISH VERSUS BEARISH LEARNING HOW TO ROLL FINAL THOUGHTS CHAPTER 6 - Understanding Spread Terminology WHAT IS A SPREAD? SPREAD BUYING VERSUS SELLING SPREAD STRATEGY SUMMARY FINAL THOUGHTS PART TWO - The Four Basic Option Strategies CHAPTER 7 - Long Call OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 8 - Long Put OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 9 - Short Call OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 10 - Short Put OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS PART THREE - Spread Strategies CHAPTER 11 - Vertical Spread OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 12 - Iron Condor OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 13 - Unbalanced Spreads OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 14 - Straddle and Strangle OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 15 - Butterfly Spread OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 16 - Condor Spread OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 17 - Calendar Spread OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 18 - Diagonal Spread OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 19 - Covered Call OVERVIEW STRATEGY EXAMPLE BEYOND THE BASICS FINAL THOUGHTS CHAPTER 20 - Combination OVERVIEW STRATEGY EXAMPLES BEYOND THE BASICS FINAL THOUGHTS CHAPTER 21 - Collar OVERVIEW STRATEGY EXAMPLE BEYOND THE BASICS FINAL THOUGHTS CHAPTER 22 - Covered Combination OVERVIEW STRATEGY EXAMPLE BEYOND THE BASICS FINAL THOUGHTS PART FOUR - Comparing Underlying Instruments CHAPTER 23 - Comparing Stocks, ETFs, Indexes, and Stock Index Futures OVERVIEW SIZE OF INSTRUMENT EXERCISE AND ASSIGNMENT MARGIN COMMISSION AND BID/ASK TAXES FINAL THOUGHTS CHAPTER 24 - ETF Options OVERVIEW WHAT IS AN ETF? ETF OPTIONS FINAL THOUGHTS CHAPTER 25 - Stock Index Options OVERVIEW WHAT IS A STOCK INDEX? INDEX OPTIONS INDEX VOLATILITY SKEW INDEX TIME DECAY FINAL THOUGHTS CHAPTER 26 - Stock Index Futures Options OVERVIEW WHAT IS A FUTURES CONTRACT? STOCK INDEX FUTURES OPTION BONUS SECTION FINAL THOUGHTS PART FIVE - Advanced Topics CHAPTER 27 - Assessing Volatility OVERVIEW COMPARISON OF IMPLIED VOLATILITIES HOW TO COMPARE VOLATILITY RESPONSE TO CHANGING CONDITIONS MARKET VOLATILITY GAUGES VOLATILITY SKEW DELTA-NEUTRAL VOLATILITY TRADING CONSIDER TRADING VOLATILITY INDEX OPTIONS FINAL THOUGHTS CHAPTER 28 - Exercise and Assignment OVERVIEW AMERICAN-STYLE EXERCISE EUROPEAN-STYLE EXERCISE CASH SETTLEMENT AUTOMATIC EXERCISE SPREAD RISKS LIKELIHOOD OF EXERCISE ASSIGNMENT RISK EXERCISE AND ASSIGNMENT PROCEDURES FINAL THOUGHTS CHAPTER 29 - Risk Management RUN IT LIKE A BUSINESS CONTROLLING RISK FINAL THOUGHTS CHAPTER 30 - Margin OVERVIEW STOCK, ETF, INDEX, AND FUTURES MARGIN COMPARING MARGIN MARGIN PLANNING INTEREST CASH ACCOUNTS AND IRAs FINAL THOUGHTS CHAPTER 31 - Placing an Order OVERVIEW TYPES OF OPTION ORDERS STRATEGY: THE MULTISTEP ORDER BID/ASK SPREAD COMMISSIONS TRADING PLATFORM CLEARING OF TRADES FINAL THOUGHTS CHAPTER 32 - Taxation of Options GENERAL RULES OPTION TAXATION TAX REDUCTION FOR BROAD-BASED INDEX AND FUTURES OPTIONS INTERNAL REVENUE SERVICE CIRCULAR 230 NOTICE FINAL THOUGHTS APPENDIX A - Strategies at a Glance—ETFs APPENDIX B - Strategies at a Glance—Indexes APPENDIX C - Strategies at a Glance—Stock Index Futures Glossary About the Author Index Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. 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