Index – The Options Trading Primer

Index

Alerts, 29

Amazon, 8

American and European expiration-style options, 71

American Stock Exchange (AMEX), 81

Assigning options, 7172

At the money (ATM), 4548

Average true range (ATR), 35

Balanced long call butterfly, 2023

Bid-to-ask price, 63

Bid-to-ask spreads, 31

Bollinger Bands, 36, 38, 39

Bracketed order, 42

Bracketed trade, 2728

on order bar, 5257

Broken wing butterflies, 100

Bull call spread, 142143

chart analysis, 144, 145

description, 143144

goals, 143

option chain, 144, 146147

order bar, 148, 150151

order confirmation dialog, 151, 152

order rules, 147148

risk profile, 148, 149

structure, 143

trade management, 151, 153

Bull put spread

chart analysis, 133134

description, 133

goals, 133

option chain, 135, 136

order bar, 139, 140

order confirmation dialog, 139, 141

order rules, 135, 137

risk profile, 137138

structure, 132133

trade management, 139, 142

Butterfly option strategy, 2024

Buying and selling, 4850

Buying calls, 1415

Buying puts, 15

call spreads, 1826

Calendar vertical spread, 90

Call and put options, 78

market makers and electronic communications networks, 3031

option contract, buyer and seller obligations, 814

buying and selling call spreads, 1718

buying and selling put and call spreads, 1826

buying calls, 1415

buying puts, 15

option premium collectors, 26

selling calls, 1516

selling puts, 1617

risk management, 2627

alerts, 29

conditional orders, 2829

rolling up, down, and/or out, 30

stop orders and bracketed trades, 2728

trade size, 27

Call spreads, 1718

Cash-covered short puts, 123

chart analysis, 124

confirmation dialog, 129, 131

description, 124

goals, 124

option chain, 125, 126

order bar, 129, 130

order rules, 125, 127

risk profile, 127128

structure, 124

trade management, 129, 132

Chart analysis

bull call spread, 144, 145

bull put spread, 133134

cash-covered short puts, 124

covered call, 111, 112

diagonal bull call spread, 154155, 156

iron butterfly, 210212

iron condor, 167, 168

synthetic long stock, 178

synthetic long stock combination, 190

unbalanced broken wing long call butterfly, 199201, 202

Chicago Board of Options Exchange (CBOE), 2, 18, 80

Clearing, 2

Columns, adding and removing, 6062

Commodity channel index (CCI), 36, 60

Conditional orders, 2829

Covered call, 1920, 109110

adding one or more puts to, 113, 116, 117

chart analysis, 111, 112

description, 110111

goals, 110

option chain, 111, 113, 114115

order bar, 120

order confirmation dialog, 120122

order rules, 116, 118

risk profile, 118119

structure, 110

trade management, 112123

Credit spread, 17, 1924

balanced long call butterfly, 2023

covered call, 1920

iron condor, 20

long call broken wing unbalanced butterfly, 2324

short strangles, 19

Current volatility, 13

Debit spread, 17

long straddle, 2425

long strangle, 25

option premium collectors, 26

synthetic long stock, 2526

Defined-risk strategies, 78

Delta, 66

Delta-triggered stop order, 54

Demand, determining, 3842

Demand zone, 35, 42

Diagonal bull call spread

chart analysis, 154155, 156

description, 154

goals, 153154

option chain, 155, 157

order bar, 159, 161162

order confirmation dialog, 162, 163

order rules, 155, 158159

risk profile, 159, 160

structure, 153

trade management, 162, 164165

Diagonal vertical spread, 90

Dow Jones Industrial Index, 78, 80, 220221

Electronic communications networks, 3031

Emotion, 108109

Exchange-traded funds (ETFs), 2, 109

Exercising options, 7172

Extrinsic values, 74

Financial index, 78

Financial leverage, 3

Fundamental analysis, 34

Gamma, 6465

Gamma-Delta-neutral option spread, 65

Greeks, 8, 11

Delta, 66

Gamma, 6465

Rho, 7071

Theta, 6770

Vega, 6667

Hands-on option trading activities. See specific activities

Hypothetical price, 92

Implied volatility, 13

In the money (ITM), 4548

Income, 3, 44, 100, 122

premium, 20, 26, 83, 109, 144, 153, 167

Investing, 3

Iron butterfly, 207, 209

chart analysis, 210212

description, 210

goals, 210

option chain, 212, 213

order bar, 216

order confirmation dialog, 217, 218219

order rules, 212, 215

risk profile, 216

structure, 209

trade management, 217, 220

Iron condor, 20, 48, 90

chart analysis, 167, 168

description, 166167

goals, 166

option chain, 49, 167, 169

order bar, 49, 172, 174

order confirmation dialog, 175, 176

order rules, 170172

risk profile, 97, 99, 172, 173

structure, 165

trade management, 175

Keltner Channel, 36, 39

Legging in, 30

Limit order, 43

Liquidity, 6364, 73

Long call butterfly risk profile, 100, 101

Long call risk profile, 93

Long option, 7

Long straddle risk profile, 95, 98

Long-term equity anticipation securities (LEAPS) options, 62

Margin calls, 82

Market

makers, 2, 3031

order, 42, 43

Momentum studies, 36

Moving average convergence/divergence (MACD), 36, 60

NASDAQ Composite index, 7, 62, 80

New York Stock Exchange (NYSE), 81

Number of strike rows, adjusting, 62

One cancels other (OCO) order, 43, 54

Open Interest, 50, 6364

Option chain, 10

American and European expiration-style options, 71

bid, ask, and mark, 63

bracketed trade on order bar, 5257

bull call spread, 144, 146147

bull put spread, 135, 136

bull put vertical spread, 46

buying and selling, 4850

cash-covered short puts, 125, 126

columns, adding and removing, 6062

contents of, 1012

covered call, 111, 113, 114115

diagonal bull call spread, 155, 157

examining and using, 45

exercising options, assigning options and options clearing corporation

call option buyers and sellers, 7172

put option buyers and sellers, 72

Greeks

Delta, 66

Gamma, 6465

Rho, 7071

Theta, 6770

Vega, 6667

iron butterfly, 212, 213

iron condor, 167, 169

number of strike rows, adjusting, 62

open interest, 6364

option strategy selection and terminology, 7274

order bar, 49, 5052

order confirmation, 5760

synthetic long stock, 180, 181

synthetic long stock combination, 190, 191

at the money, in the money, out of the money, 4548

unbalanced broken wing long call butterfly, 201

Option contract, 4

buyer and seller obligations, 814

buying and selling call spreads, 1718

buying and selling put and call spreads, 1826

buying calls, 1415

buying puts, 15

option premium collectors, 26

selling calls, 1516

selling puts, 1617

Option Greeks. See Greeks

Option premium collectors, 26

Option strategies

bull call spread, 142143

chart analysis, 144, 145

description, 143144

goals, 143

option chain, 144, 146147

order bar, 148, 150151

order confirmation dialog, 151, 152

order rules, 147148

risk profile, 148, 149

structure, 143

trade management, 151, 153

bull put spread

chart analysis, 133134

description, 133

goals, 133

option chain, 135, 136

order bar, 139, 140

order confirmation dialog, 139, 141

order rules, 135, 137

risk profile, 137138

structure, 132133

trade management, 139, 142

cash-covered short puts, 123

chart analysis, 124

confirmation dialog, 129, 131

description, 124

goals, 124

option chain, 125, 126

order bar, 129, 130

order rules, 125, 127

risk profile, 127128

structure, 124

trade management, 129, 132

covered call, 109110

adding one or more puts to, 113, 116, 117

chart analysis, 111, 112

description, 110111

goals, 110

option chain, 111, 113, 114115

order bar, 120

order confirmation dialog, 120122

order rules, 116, 118

risk profile, 118119

structure, 110

trade management, 112123

diagonal bull call spread

chart analysis, 154155, 156

description, 154

goals, 153154

option chain, 155, 157

order bar, 159, 161162

order confirmation dialog, 162, 163

order rules, 155, 158159

risk profile, 159, 160

structure, 153

trade management, 162, 164165

emotion, 108109

iron butterfly, 207, 209

chart analysis, 210212

description, 210

goals, 210

option chain, 212, 213

order bar, 216

order confirmation dialog, 217, 218219

order rules, 212, 215

risk profile, 216

structure, 209

trade management, 217, 220

iron condor

chart analysis, 167, 168

description, 166167

goals, 166

option chain, 167, 169

order bar, 172, 174

order confirmation dialog, 175, 176

order rules, 170172

risk profile, 172, 173

structure, 165

trade management, 175

managing working trades, 107108

selection and terminology, 7274

synthetic long stock combination, 188

chart analysis, 190

description, 189

goals, 189

option chain, 190, 191

order bar, 193, 195

order confirmation dialog, 193, 196

order rules, 190, 193

risk profile, 193, 194

structure, 189

trade management, 197198

synthetic long stock

chart analysis, 178

description, 178, 179

goals, 177178

option chain, 180, 181

order bar, 183, 185

order confirmation dialog, 186, 187

order rules, 180, 182183

risk profile, 183, 184

structure, 177

trade management, 186, 188

unbalanced broken wing long call butterfly

chart analysis, 199201, 202

description, 199

goals, 199

option chain, 201

order bar, 205207

order confirmation dialog, 207, 208

order rules, 201, 203205

risk profile, 204, 205

structure, 198

trade management, 207

Option traders, 19

Options. See also specific entries

history of, 13

trading, 35

financial leverage, 3

growth, 3

statistical probabilities in, 5

statistically predictable outcomes, 4

strategies for market condition, 4

Options Clearing Corporation (OCC), 2, 8, 1213, 7172

Order bar, 5052

bracketed trade, 5257

bull call spread, 148, 150151

bull put spread, 139, 140

cash-covered short puts, 129, 130

covered call, 120

diagonal bull call spread, 159, 161162

iron butterfly, 216

iron condor, 172, 174

option chain and, 49

synthetic long stock, 183, 185

synthetic long stock combination, 193, 195

unbalanced broken wing long call butterfly, 205207

Order confirmation dialog, 5760

bull call spread, 151, 152

bull put spread, 139, 141

cash-covered short puts, 129, 131

covered call, 120122

diagonal bull call spread, 162, 163

iron butterfly, 217, 218219

iron condor, 175, 176

synthetic long stock, 186, 187

synthetic long stock combination, 193, 196

unbalanced broken wing long call butterfly, 207, 208

Order rules, 54

bull call spread, 147148

bull put spread, 135, 137

cash-covered short puts, 125, 127

covered call, 116, 118

diagonal bull call spread, 155, 158159

iron butterfly, 212, 215

iron condor, 170172

synthetic long stock, 180, 182183

synthetic long stock combination, 190, 193

unbalanced broken wing long call butterfly, 201, 203205

Out of the money (OTM), 4548

Pattern day traders, 57

Penny stocks, 44, 81

Pink sheet stocks, 44, 81

Portfolio margin, 82

Premium, 8

collectors, 19

income, 20, 26, 83, 109, 144, 153, 167

Price charts

examining, 3438

setting up and scanning, 8387

SPX, 84

volatility index, 85

Price movement, 47

Price trends, 8387

Probability, 19

ITM, 50

Profit and loss, 122, 139, 207

Random beast, 42

Rate of interest, 7071

Regulation T calls, 8283

Relative strength index (RSI), 36, 60

Rho, 7071

Risk graphs, 18, 91

Risk management, 2627

alerts, 29

conditional orders, 2829

rolling up, down, and/or out, 30

stop orders and bracketed trades, 2728

trade size, 27

Risk profile, 18, 9192

broken wing, unbalanced long call butterfly, 100, 102

bull call spread, 148, 149

bull put spread, 137138

cash-covered short puts, 127128

covered call, 118119

diagonal bull call spread, 159, 160

examples, 92102

iron butterfly, 216

iron condor, 97, 99, 172, 173

long call, 93

long call butterfly, 100, 101

long straddle, 95, 98

short put, 9394

short strangle, 95, 96

synthetic long stock, 183, 184

synthetic long stock combination, 193, 194

time to use, 92

unbalanced broken wing long call butterfly, 204, 205

Rolling down, 104

Rolling down and out, 105

Rolling out, 104

Rolling up, 104

Rolling up and out, 105

Rules-based trading

buying puts/buying calls, 8889

multiple price charts, setting up and scanning, 8387

option trading levels, 7778

margin calls, 82

option level 1, 78

option level 2, 78

option level 3, 7879

option level 4, 7980

portfolio margin, 82

regulation T calls, 8283

S&P volatility index, 8081

standard margin, 8182

risk profiles, 9192

examples, 92102

time to use, 92

rolling up, down, and out, 102106

rules evaluating factors, 87

selling puts/selling calls, 88

trading spreads, 8991

Rules of thumb, 63

S&P 500 financial index, 7, 62

personality of, 83

price charts, 84

S&P volatility index, 8081

Scalpers, 43

Secret trade, 19

Securities and Exchange Commission (SEC), 2

Sell to cover, 9

Selling calls, 1516

Selling puts, 1617

call spreads, 1826

Short option, 7

Short put risk profile, 9394

Short strangle risk profile, 95, 96

Skip strike butterflies, 102

Slippage, 63

Standard margin, 8182

Stochastic oscillator, 36

Stop orders, 2728, 43

Strike prices, 1314

Strike widths, 14

Supply, determining, 3842

Supply zones, 35

Synthetic long stock, 74

chart analysis, 178

description, 178, 179

goals, 177178

option chain, 180, 181

order bar, 183, 185

order confirmation dialog, 186, 187

order rules, 180, 182183

risk profile, 183, 184

structure, 177

trade management, 186, 188

Synthetic long stock combination, 188

chart analysis, 190

description, 189

goals, 189

option chain, 190, 191

order bar, 193, 195

order confirmation dialog, 193, 196

order rules, 190, 193

risk profile, 193, 194

structure, 189

trade management, 197198

Technical analysis, 164

Theta, 6770

Time value, 6770

Trade management

bull call spread, 151, 153

bull put spread, 139, 142

cash-covered short puts, 129, 132

covered call, 112123

diagonal bull call spread, 162, 164165

iron butterfly, 217, 220

iron condor, 175

synthetic long stock, 186, 188

synthetic long stock combination, 197198

unbalanced broken wing long call butterfly, 207

Trade size, 27

Trade-the-market squeeze, 38

Trading

bias, developing, 4244

options, 35

financial leverage, 3

growth, 3

price charts, examining, 3438

statistical probabilities in, 5

statistically predictable outcomes, 4

strategies for market condition, 4

supply and demand, determining, 3842

trading bias, developing, 4244

underlying, scanning, 34

watch lists, developing, 3334

platforms, 60

rules-based. See Rules-based trading

spreads, 8991

Unbalanced broken wing long call butterfly, 2324

chart analysis, 199201, 202

description, 199

goals, 199

option chain, 201

order bar, 205207

order confirmation dialog, 207, 208

order rules, 201, 203205

risk profile, 100, 102, 204, 205

structure, 198

trade management, 207

Underlying equity, 34

U.S. Security and Exchange Commission (SEC), 78

Vega, 6667

Vertical spreads, 17, 18, 48, 89

Volatility, 6667

Volatility Index (VIX), 8081

price charts, 85

Watch lists, developing, 3334

Working trades, managing, 107108