Options Made Easy: Your Guide to Profitable Trading - Pearsoncmg

369 Pages·2013·10.79 MB·English

by  Guy Cohen

Praise for Options Made Easy
“This is one of the best books on option strategies I have ever read.”
—Daniel J. Zanger,President, Chartpattern.com
“Guy Cohen builds a foundation for the reader with simple definitions and clear
mechanics on what can be a complicated topic. He then approaches each
strategy with a context of fundamental and technical analysis and sets the stage
for a solid understanding of risk, reward, and probability.”
—Dave Whitmore,Senior Strategist, Investor Education, E*Trade Financial
“Guy Cohen really does make options easy. Each options strategy has both a
visual diagram of the risk and reward, as well as a logical explanation of how the
strategy works. Combined with primers on fundamental and technical analysis,
Guy shows you how to put the odds in your favor in today’s options markets.”
—Price Headley,Founder of BigTrends.com and author of Big Trends
in Trading
“Guy Cohen has put together a comprehensive, easy to understand, must-read
on options for investors of all levels. Practical in its approach, the graphics bring
clarity to what beginning investors might consider complicated strategies.”
—Joseph Sellitto,CEO, Global Execution Brokers
“The best book on options I have ever come across.”
—Alpesh B. Patel,bestselling author of Trading OnlineandMind of a Trader
“Guy Cohen cuts through the fog and helps all levels of investors grasp the most
intricate concepts. He does so with great clarity and brevity despite covering
such a broad set of topics. His is an invaluable guide for the interested beginner
and the most advanced trader.”
—Ned Bennett, former CEO, optionsXpress, Inc.
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Options
Made Easy
Third Edition
Your Guide to Profitable Trading
Guy Cohen
Vice President, Publisher: Tim Moore
Associate Publisher and Director of Marketing: Amy Neidlinger
Executive Editor: Jim Boyd
Editorial Assistant: Pamela Boland
Operations Specialist: Jodi Kemper
Marketing Manager: Lisa Loftus
Cover Designer: Chuti Prasertsith
Managing Editor: Kristy Hart
Project Editor: Betsy Gratner
Copy Editor: Deadline Driven Publishing
Proofreader: Gill Editorial Services
Indexer: Lisa Stumpf
Compositor: Nonie Ratcliff
Manufacturing Buyer: Dan Uhrig
© 2013 by Guy Cohen
Published by Pearson Education, Inc.
Publishing as FT Press
Upper Saddle River, New Jersey 07458
This book is sold with the understanding that neither the author nor the
publisher is engaged in rendering legal, accounting, or other professional
services or advice by publishing this book. Each individual situation is
unique. Thus, if legal or financial advice or other expert assistance is
required in a specific situation, the services of a competent professional
should be sought to ensure that the situation has been evaluated carefully
and appropriately. The author and the publisher disclaim any liability, loss,
or risk resulting directly or indirectly, from the use or application of any of
the contents of this book.
FT Press offers excellent discounts on this book when ordered in quantity for bulk
purchases or special sales. For more information, please contact U.S. Corporate and
Government Sales, 1-800-382-3419, [email protected]. For sales
outside the U.S., please contact International Sales at [email protected].
Company and product names mentioned herein are the trademarks or registered trade-
marks of their respective owners.
All rights reserved. No part of this book may be reproduced, in any form or by any means,
without permission in writing from the publisher.
Printed in the United States of America
Second Printing: July 2013
ISBN-10: 0-13-308789-1
ISBN-13: 978-0-13-308789-5
Pearson Education LTD.
Pearson Education Australia PTY, Limited.
Pearson Education Singapore, Pte. Ltd.
Pearson Education Asia, Ltd.
Pearson Education Canada, Ltd.
Pearson Educación de Mexico, S.A. de C.V.
Pearson Education—Japan
Pearson Education Malaysia, Pte. Ltd.
Library of Congress Cataloging-in-Publication Data
Cohen, Guy.
Options made easy : your guide to profitable trading / Guy Cohen. — Third edition.
pages cm
Includes bibliographical references.
ISBN 978-0-13-308789-5 (hardcover : alk. paper)
1. Options (Finance) 2. Speculation. I. Title.
HG6024.A3C643 2013
332.64'53--dc23
2012050944
In memory of Geoffrey Glassborow, who cured me from what was
supposed to be incurable.
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vii
Contents
(c)Contents
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
1 Introduction to Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2 Into the Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
3 The Basics of Fundamental Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
4 The Basics of Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
5 Two Popular Strategies and How to Improve Them . . . . . . . . . . . . . . . . . . . .139
6 An Introduction to the Greeks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165
7 Bull Call Spreads and Bull Put Spreads . . . . . . . . . . . . . . . . . . . . . . . . . . . .197
8 Two Basic Volatility Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .219
9 Two Basic Sideways Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .237
10 Trading and Investing Psychology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .261
11 Putting It All Together—A Call to Action . . . . . . . . . . . . . . . . . . . . . . . . . . .277
12 Trading with the OVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .287
Appendix IStrategy Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .313
Appendix IIGlossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .325
References and Recommended Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . .339
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .341
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ix
Acknowledgments
It’s amazing how many parts of your mind go into writing a book like this. As a
result, there are a number of people I must thank for both their direct and
indirect influence.
First to my friend, the late Geoffrey Glassborow, to whom this book is
dedicated and whose amazing skills enabled me to prove modern medicine
wrong. In 1994, I was diagnosed with ulcerative colitis, an intensely debilitating
condition of the lower intestine. The condition was serious enough to lead
doctors in both the UK and the U.S. to recommend surgery as the only means of
“relief.” At this time, I was in constant pain and fear, such that even venturing
out of my home became an achievement in itself. Through Geoffrey, I made a
full recovery and also learned how to think.
I also need to thank my MBA finance options lecturer from City University
(Cass) Business School, Professor Gordon Gemmill. It was his enthusiasm that
got me hooked in the first place.
Alpesh Patel, thank you for introducing me to the Financial Times and
Pearson. Finally, to Dominic and Lulu, who are more family than family.
The publisher is grateful for permission to use charts created on OVI Charts, Worden Brothers
TC2005, and TradeStation®, the flagship product of TradeStation Technologies Inc.
(http://www.tradestation.com).