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The Options Playbook

by Brian Overby

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The Options Playbook was created to demystify option trading and teach investors different option plays for all market conditions. No confusing jargon. No unnecessary mumbo-jumbo. Just clear, easy-to-understand explanations of more than 40 of the most popular option strategies broken down into a play-by-play format including:

  • Play Name: Covered call, Long put, Iron condor, etc.

  • The Setup: The goals and reasons to run each play

  • Who Should Run It: Rookies, Veterans or All-Stars, based on degree of difficulty

  • When To Run It: Describes each play as bullish, bearish or neutral

  • The Strategy: A detailed overview of each strategy and their risks

For the first-time option trader, The Options Playbook features a "Rookie's Corner," addressing the basic definitions and concepts you need to understand this market, tips to avoid common beginner’s mistakes, and suggested strategies to "get your feet wet".

For more experienced option traders, an expanded section on implied volatility explains how this handy variable can be used to estimate the potential range of the stock over the options life. A detailed section on pricing variables (Greeks) helps you understand how an option’s price is affected by changes in market conditions. Although their forecasts are not guaranteed, implied volatility and the Greeks may provide experienced traders a way to estimate option changes due to market factors. You’ll also learn how time decay and a change in implied volatility can affect your trade after it’s in place and how to recover if things don’t go according to plan.

The Options Playbook features Options Guy Tips from TradeKing Senior Analyst Brian Overby. Like any good coach, Overby’s handy insights help you put theory into successful real-world trading.

This expanded second edition includes 10 new plays and 56 new pages of handy content describing a brief history of options, five common mistakes options traders make and how to avoid them, an expanded glossary, and how to manage option positions by rolling to a different month and strike. Also explained are the differences between index and equity options, managing early exercise and assignment, and how to calculate position delta and use it to manage overall position risk.

Option strategies entail risk and are not appropriate for everyone. Before trading options, you should review Characteristics and Risks of Standardized Options. Some option strategies involve multiple positions simultaneously. These multi-leg strategies incur additional commissions and may invoke special treatment when preparing your taxes. If you are unsure about how a particular strategy may impact your financial picture, please consult a tax professional before trading.

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All-Star Analysis

186 Calc Covered Call Returns graphic on 01/10/2011

After tax yield on 05/16/2011
see Tax-equivalent yield.

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