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The investing publics acceptance level of listed options, which hovered at 2.5 percent for the first 20 years of trading, more than doubled between 1993 and 1998. Whether the interest in options continues to grow at this accelerated rate remains to be seen, but I believe it will.
This jump can be attributed to a number of factors, primarily the relentless informational campaigns by the Chicago Board Options Exchange (CBOE), Options Clearing Corporation (OCC), Options Industry Council (OIC), and the extended bull market in equities during the 90s. The amount of assistance offered by these industry organizations is remarkable. It is hard to find another industry that puts such effort into educating its customers.
While general usage of puts and calls has more than doubled, the growth in participation has been limited predominantly to straight purchases and sales. There is no doubt that a straight order (to buy or to sell) is the easiest instruction to manage. Clearly the most leveraged use of this relatively new vehicle, being long a call (or short a call) brings the greatest level of excitement to an individual playing the market. In the late 90s, pure excitement, it seemed, was a governing force in the investing decisions of many.
Put/call purchases and sales are the easiest and most leveraged strategies. These straight orders, however, miss the biggest advantages of options strategy. The combination of options called spreads allows investors to tailor a more sophisticated risk/ reward profile, increasing their earning potential to a much greater degree. Options professionals build their positions from a spread viewpoint.
In The Options Workbook, we emphasize these fundamentally sound spread relationships,and their composition and effectiveness as surrogates for straight equity transactions. Well take you through the construction of these combinations one step at a time and reinforce the risk/reward profiles that each carries. There are exercises and quizzes reinforcing the concepts discussed.
We cover the topics of put and call purchases and sales; however, with more brokerage firms streamlining their ability to handle spreads and lowering fees to do two sides of a transaction, we emphasize the value of being spread, a concept being missed by millions of options users today.
You also will see some examples of technology used to price, execute, and manage complex option positions. Although you are only beginning your options education, it is important to be exposed to the sophisticated tools of the pros, as access to similar software is becoming readily available to the common investor.
After completing the following lessons, feel free to e-mail us at firstname.lastname@example.org with any questions you may have about the topics covered. We will do our best to respond in a timely manner.