Table Of ContentTIME IS MONEY
The Power Of Non-Directional Options Trading
Kerry W. Given, Ph.D.
Founder, Parkwood Capital, LLC
Co-Founder, G&L Capital Management, LLC
Time is Money
Copyright ©2015 Kerry W. Given
ISBN 978-1622-877-57-7 HC
ISBN 978-1622-877-58-4 PRINT
ISBN 978-1622-877-60-7 EBOOK
LCCN 2014955899
February 2015
Published and Distributed by
First Edition Design Publishing, Inc.
P.O. Box 20217, Sarasota, FL 34276-3217
www.�irsteditiondesignpublishing.com
ALL RIGHTS RESERVED. No part of this book publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means ─ electronic, mechanical, photo-copy,
recording, or any other ─ except brief quotation in reviews, without the prior permission of the
author or publisher.
To Charlotte, my best friend, confidante and adviser. I
am a better person due to your influence in my life.
In memory of our son and fellow option trader,
Sean (1975 - 2007). I miss our discussions of Google.
Acknowledgments
When I look back over my life to this point, I realize that I owe this book
and many other accomplishments to my wife, Charlotte, who has been a
wonderful life partner. I am a better person because of her being in my life.
Her unwavering support, influence, and excellent advice have been crucial
to my success.
I owe thanks to many teachers, especially Jim Bittman and Russell
Rhoads at the Options Institute of the Chicago Board Options Exchange.
My continued conversations with Jim Bittman through the years have been
enlightening. His support and advice have been invaluable for both my
options trading and the development of this book.
Most of all, I wish to thank my students. Their support and
encouragement are very much appreciated. Through the years, I have
listened to my students and learned of the common misunderstandings and
pitfalls that face beginning options traders. My coaching courses and this
book are better products as a result.
Ray Lilja was my first coaching student in 2007 and that led to the start-
up of Parkwood Capital, LLC. His support and encouragement have led to
our partnership in founding G&L Capital Management, LLC. Thank you,
Ray, for your trust and support.
Royal Ellinger, D.D.S., graciously offered to read the first draft of the
manuscript and his comments and observations have resulted in this being a
much better book. Thank you, Royal, for the time and thought you invested
in this project.
Table of Contents
Acknowledgments
Introduction
CHAPTER ONE
Where Is My Risk?
The Opportunistic Model
The Insurance Model
Non-Directional Trading
Summary
CHAPTER TWO
Who Was Gauss?
How Does It Work In Real Life?
Calculating Probabilities
Using Probabilities In Options Trading
Put The Probabilities On Your Side
Is Trading Options Gambling?
A Zero-Sum Game?
Summary
CHAPTER THREE
The Lowly Stop Loss
The 200% Rule
Adjusting the Position
Why Do We Have To Adjust So Often?
Money Management
Summary
CHAPTER FOUR
What Are the Greeks?
Individual Option Greeks vs. Position Greeks
Which Trade Is Best In This Market?
Time Decay: Your Pro�it Machine
Managing the Trade With the Greeks
Summary
CHAPTER FIVE
What Are All These Different Volatilities?
Implied Volatility As A Measure Of Risk
Implied Volatility Skews
Implied Volatility and Options Pricing
Implied Volatility at the Beginning of the Trade
Watch Your Vega!
Summary
CHAPTER SIX
How Do Weekly Options Work?
What Do The Greeks Tell Us?
What Else Is Different?
Possible Strategies With Weekly Options
What Can Go Wrong?
Summary
CHAPTER SEVEN
Building the Vertical Spread
Effects of Implied Volatility
Early Exercise
Expiration and Exercise
Margin Requirements
Selection Of Strike Prices
Summary
CHAPTER EIGHT
The Two Deadly Emotions
How Did You Succeed In Life?
The Two-Headed Monster
Summary
CHAPTER NINE
Vega Risk
Volatility Skews
The Search For Candidates
Trade Management and Adjustment
Early Exercise
OTM Calendar Spreads
Summary
CHAPTER TEN
Single Or Double?
The Search For Candidates
Determining The Optimal Strike Prices
Trade Management and Adjustment
Summary
CHAPTER ELEVEN
Constructing The Butter�ly Spread
Iron Butter�ly Spreads
Margin Requirements
Trade Management And Adjustment
Back Testing The Butter�ly Trading Systems
Closing Butter�ly Spreads
CHAPTER TWELVE
Building The Double Diagonal Spread
Trade Management And Adjustment
Back Testing the Double Diagonal
Double Diagonals vs. Double Calendars
Summary
CHAPTER THIRTEEN
Building The Condor Spread
Building The Iron Condor Spread
The Debit Condor vs. The Iron Condor
My Condor May Not Be Your Condor
The Best Iron Condor Strategy
Stocks, Indexes or ETFs?
Condor Safety Nets
Trade Management And Adjustment
Volatility And The Iron Condor
Back Testing The Iron Condor Trading Systems
Summary
CHAPTER FOURTEEN
The Myth Of the Best Strategy
Consider the Current Market
Where Is Volatility?
How Does The Trade Make Money?
Compare and Contrast
The Role of Diversi�ication
Summary
CHAPTER FIFTEEN
Market Crashes
Trending Markets
My Mistakes
Summary
CHAPTER SIXTEEN
How Does a Market Maker Make Money?
Does the Retail Trader Have a Chance?
Milking the Cows
Summary
Introduction
Traders love to make predictions. Even better, they enjoy collecting a
nice profit when their prediction proves to be correct. This may be the most
fundamental sense of satisfaction that traders enjoy. Many successful
traders have been interviewed through the years and a common assertion is
that making money wasn’t the source of their motivation; they often regard
the money as only a “score card” of sorts. The core sense of
accomplishment arose from the thrill of the hunt and the satisfaction of
having one’s analysis being proven correct.
For some traders, the analysis of the fundamentals of a company and/or a
market is the principal activity leading to their conclusion to buy a
particular stock or an options position on that stock. This may include a
detailed analysis of the balance sheet and various financial figures, such as
book value, debt to equity ratios, current assets to current liabilities ratios,
and many more financial measures. Many fundamental analysts track the
price to earning ratio and analyze the business prospects to attempt to
predict the future earnings stream. The most famous of the fundamental
analysts, Warren Buffett, emphasizes the comparison of the company’s
book value to the current stock price. Buffett’s mentor, Benjamin Graham,
outlined the best case for fundamental analysis of stocks in his famous
book, The Intelligent Investor.
Other traders rely on technical analysis, focusing exclusively on the
stock’s price chart. John Murphy is one of the best-known technical
analysts, and his book, Technical Analysis of the Financial Markets,
remains a best seller. The essence of technical analysis is that all of the
relevant information for the trader is contained in the stock’s price and
volume behavior. Technical analysts draw trend lines, identify levels of
support and resistance, analyze candlestick patterns, monitor trading
volume, plot the Bollinger bands, calculate various statistical measures, and
so on.
Many traders employ a combination of both fundamental and technical
analysis. Regardless of the techniques used for the analysis, a significant
amount of work and study goes into the trader’s thought process that leads
to the initiation of the trade.
