Fundamentals of Options Market Book

	Introduction	xvii
1.	Introduction to Options	1
	Why Stock Options?
	History of Options
	The Earliest History
	The Birth and Rise of Today's Options Industry
	Options: A Conceptual Overview
	Example: Undeveloped Land
	Example: Property / Health Insurance
2.	Characteristics of Stock Options	9
	Introduction
	Underlying Security
	The Two Types of Stock Options
	Call Option
	Put Option
	Strike Price / Exercise Price Expiration Cycle
	Unit of Trade / Contract Size
	Option Styles Option Styles: LEAPS and FLEX Options
	Option Class Reading Options Quotes
	Quiz
3.	Building Blocks	25
	Introduction
	Long Stock
	Short Stock
	Long Call
	Short Call
	Long Put
	Short Put
	Graphing an Option Position
	Quiz
4.	Pricing Options	37
	Introduction
	Option Status Relative to the Underlying Stock
	ITM
	ATM
	OTM
	Factors Affecting the Price of an Option Extrinsic Value
	Pricing Models: An Overview
	Pricing Model Variables
	Theoretical Value versus the Marketplace
	Summary
	Quiz
5.	Option Volatility	55
	Introduction
	Measures of Volatility
	Factors Influencing Implied Volatility
	The Importance of Implied Volatility
	Volatility's Impact on the Pricing Model
	Pricing Models and Price Movement
	Mean
	Standard Deviation
	Volatility, Standard Deviation, and Mean
	Pricing Models and Option Theoretical Value
	Summary
	Quiz
6.	Introduction to Synthetics	71
	Introduction
	Examples
	Pricing Synthetics
	The Synthetic Triangle
	Conversion / Reversal
	Conversion / Reversal and Free Money
	Conversion / Reversal Risks
	Interest-Rate Risk
	Closing at the Strike
	Summary
	Quiz
7.	The Greeks	85
	Introduction
	The Greeks
	Delta Probability of an ITM Finish upon Expiration
	Delta and Time
	The Trouble with Deltas
	Gamma
	Gamma and Time
	Theta
	Rho
	Vega Vega and Time
	Summary
	Quiz
8.	Position Trading	107
	Introduction
	Panic Sell-Off Expectation: The Bounce
	Market Maker
	General Observations on Position Trading
	Directional Risk Hedging
	Delta Neutral versus Contract Neutral Spreading
	Hedging Summary
9.	Option Strategies	125
	Introduction
	Market Outlooks
	Spreads Legging
	Bullish Strategies
	Bullish: Long Stock
	Bullish Long Stock (Margined) Bullish Long Calls
	Leveraged Risk
	The Delta Position Managing the Position
	A Moderately Bullish Bull Spread
	Call Bull Spread
	Put Bull Spread
	Bullish: Ratio Bull Spread (Long)
	Managing the Position
	Bearish Strategies
	Bearish: Short Stock
	Bearish: Long Puts
	Leveraged Risk
	The Delta Position
	Managing the Position
	Moderately Bearish: Bear Spread
	Put Bear Spread
	Call Bear Spread
	Bearish: Ratio Bear Spread (Long)
	Managing the Position
	Neutral Strategies
	Covered Call Writing / Buy Write
	Long-Term Strategy
	Short-Term Strategy
	Bull Spread Covered Write / Buy Write Horizontal Calendar Spread
	Diagonal Calendar Spread Straddle (Short)
	Managing the Position
	Strangle (Short) Managing the Position
	Ratio Bull Spread (Short)
	Ratio Bear Spread (Short)
	Volatile Strategies ("Backspread")
	Straddle (Long)
	Market Risks: Analyzing the Greeks
	Managing a Long Straddle
	Market Risks: Analyzing the Greeks
	Managing a Long Strangle
	Volatile Strategy Summary
	The Truth about Butterflies
	Neutral Strategies
	Volatile Strategies
	Summary Risk-Reduction Strategies
	Protecting Unrealized Profit Married Puts
	Risk Collar / Fence
	Long Underlying Security (Risk Collar / Fence)
	Short Underlying Security (Risk Collar)
	Quiz
10.	Market Making	231
	Introduction
	Who Are Market Makers?
	Individual Trader versus Market Maker
	Trading Styles
	Backspreader Frontspreader
	Market Maker Trading: An Overview
	Market Making As a Business
	A Market Maker's Complex Positioning Profit and Hedging
11.	The Marketplace	243
	Introduction to Stocks
	Historical Quotes
	Real-Time Quotes Reading Stock Quotes
	The Exchanges
	The Specialist System NASDAQ and the Market-Maker System
	Options Exchanges Rules of the Option Exchange
	The Exchange Floor Staff and Members
	The Exchange Staff
	Stock Firms / Clerks
	Analyzing the Marketplace
	Fundamental Analysis
	CBOE Volatility Index--VIX
	Put-to-Call Ratio
	Indices
	Weighting Indices Using Indices
12.	Getting Started	265
	Introduction
	Trading Stock
	Executing New York Stock Exchange (NYSE) Orders
	Executing NASDAQ Stock
	Executing NASDAQ Orders
	Options Execution
	Electronic Floor Broker Execution
	Auto-Execution
	Trading Accounts
	The Exercise / Assignment Process
	Trade Station
	The Brokers and Brokerage Firms
	Questions to Ask Brokerage Firms
	Data Providers
A.	Order Types	285
	All-or-None (AON) Order
	Day Order
	Market Order (MKT) Stop Orders
	Fill-or-Kill (FOK) Order
	Good-Until-Canceled (GTC) Order
	Limit Order
	Market-on-Close (MOC) Order Market-if-Touched (MIT) Order
B.	Strategy Formulas	289
	Married Put
	Protecting Unrealized Profit
	Covered Call Potential
	Bull Spread (Long Call Spread)
	Bull Spread (Short Put Spread)
	Bear Spread (Long Put Spread)
	Bear Spread (Short Call Spread)
	Ratio Bull Spread (Long)
	Ratio Bull Spread (Short)
	Ratio Bear Spread (Long)
	Ratio Bear Spread (Short)
	Long Straddle
	Short Straddle
	Long Strangle Short Strangle
	Long Butterfly
	Short Butterfly
	Long Iron Butterfly
	Short Iron Butterfly
	Long Condor
	Short Condor Risk Collar/Fence (Risk Conversion)
	Risk Collar/Fence (Risk Reversal)
C.	Indices	295
	Sector Indices
	Broad-Based Indices
	Foreign Market Indices
D.	Expiration Cycles	299
E.	Fractions to Decimal Conversion Chart	303
F.	The Options Clearing Corporation (OCC)	305
	Introduction
	Stock Options Exchanges
G.	Intrinsic and Premium Formulas	307
	Introduction
	Call Intrinsic Value
	Put Intrinsic Value Call Premium Value
	Put Premium Value
H.	The Black-Scholes Model	309
	Introduction
	The Binomial Model
I.	Quiz Answers	311
	Glossary	319
	Index	333