The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) (Hardcover)

by George Jabbour (Author), Phillip Budwick (Author) "The most misunderstood concept in investments and finance is the concept of risk..." (more)
Key Phrases: upside breakeven point, put ratio spread, protective call, Call Put, Original Call, Original Put Position (more...)

Editorial Reviews

Product Description
Given the recent volatility in the markets over the past few years,there is a growing need for traders to learn how options can be used for better risk management.Using the right strategies and trade adjustments,creative investors can hedge or even boost their profits,limit their losses,and create risk-free trades.Although many investors understand how to trade stocks or options,very few know how to use options as a dynamic risk reduction and portfolio enhancement tool.Implementing these strategies requires more than just an understanding of the mechanics of trading,it requires ingenuity and imagination —as well as a comprehensive trading reference tool. Designed as a resource for intermediate to advanced traders,The Option Trader Handbook teaches both the science and the art of trade man- agement,and offers numerous strategies and tech- niques for minimizing risk and volatility.The authors, both recognized experts in the field,discuss stock and option positions and detail the various types of trade adjustments that can be made,what situa- tions are appropriate for each adjustment,and the best time to make those adjustments.

With this book as your guide,you will find sensible answers to questions such as:

• What happens if my stock or option position does not move exactly as planned?
• Is there a way for me to lock in unrealized prof-- its or provide a hedge against further losses?
• How can I create risk--free trade?

In a logical,sequential order,the authors cover the principles of risk and trade management, as well as the tools required to put them into practice, bringing them all together with a proven formula for successful trading and portfolio management.

An unparalleled resource for today ’s volatile invest- ment climate,The Option Trader Handbook offers:

• A detailed guide for better trade and portfolio management
• Numerous trade adjustments for long and short stock positions,calls and puts,spreads and com- binations
• Specific trading examples with detailed charts and graphs to clearly demonstrate how each trade adjustment is done.

From the Inside Flap
Given the recent volatility in the markets over the past few years, there is a growing need for traders to learn how options can be used for better risk management. Using the right strategies and trade adjustments, creative investors can hedge or even boost their profits, limit their losses, and create risk-free trades. Although many investors understand how to trade stocks or options, very few know how to use options as a dynamic risk reduction and profile enhancement tool. Implementing these strategies requires more than just an understanding of the mechanics of trading, it requires ingenuity and imagination--as well as a comprehensive trading reference tool.

Designed as a resource for intermediate to advanced traders, The Option Trader Handbook teaches both the science and the art of trade management, and offers numerous strategies and techniques for minimizing risk and volatility. The authors, both recognized experts in the field, discuss stock and option positions and detail the various types of trade adjustments that can be made, what situations are appropriate for each adjustment, and the best time to make those adjustments.

With this book as your guide, you will find sensible answers to questions such as:

• What happens if my stock or option position does not move exactly as planned?
• Is there a way for me to lock in unrealized profits or provide a hedge against further losses?
• How can I create risk-free trades?

In a logical, sequential order, the authors cover the principles of risk and trade management as well as the tools required to put them into practice, weaving them all together with a proven formula for successful trading and portfolio management.

An unparalleled resource for today’s volatile investment climate, The Option Trader Handbook offers:

• A detailed guide for better trade and portfolio management
• Numerous trade adjustments for long and short stock positions, calls and puts, spreads and combinations
• Specific trading examples with numerous charts and graphs to clearly demonstrate how each trade adjustment is done

By demonstrating how options can be used to hedge risks and boost overall returns, The Option Trader Handbook will become one of the most valuable assets in any trader’s portfolio.

See all Editorial Reviews

Product Details

• Hardcover: 352 pages
• Publisher: Wiley (June 2, 2004)
• Language: English
• ISBN-10: 0471567078
• ISBN-13: 978-0471567073
• Product Dimensions: 9.1 x 6 x 1.3 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.3 out of 5 stars See all reviews (11 customer reviews)
• Amazon.com Sales Rank: #103,722 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

99 of 102 people found the following review helpful:

5.0 out of 5 stars Solid book, June 16, 2004

By	William Rockwell (Chatsworth, CA United States) - See all my reviews (REAL NAME)

You should probably have a bit of experience before reading this book. It is not an absolute beginner's book. However the concepts are presented clearly and there are enough of them so it is likely there will be something interesting for most everyone.

You will need a level of mathematical sophistication necessary to multiply by two or three as well as addition and subtraction. This book contains no mathematical concepts beyond that level.

If you are looking for theory, keep looking as you won't find much of that here. Practicality is the hallmark of the book.

There have been thousands of books written on investments and options over the years. It would be quite hard to come up with much that is truly original. Instead the better books come at things from a different perspective. This book is certainly better than most on the subject. Here are some of the things that make this book different than most.

There is no super secret no risk sure fire rags to riches in 30 days plan presented. Instead there is an emphasis on trading should be looked at for what it is; a business. A healthy respect for risk is shown throughout the pages. The first chapter of the book is worth almost anyone's time as most people do not seem to realize they are in business when they call their broker or click on their order page.

Many options books present large numbers of P/L graphs on the various possible positions. This book is no exception, however they approach things from a slightly different perspective. Here much of the emphasis is on how to move from one position to another. They extensively cover many different changes you would want to consider making as the market or your perception of it changes.

Knowing the relationships between different postions is important for several reasons. First you can react quickly by having a good idea as to what to do in a rapidly changing enviroment where a few seconds delay can cost a lot of money. An even better use for this information is in forming your trading plan before you ever place an order. A third use is to avoid situations where there are no good adjustments if things do not go as planned.

The first negative that I found had to do with the length. In general having any 2 of the three building blocks (puts, calls, underlying) you can synthetically construct the other piece (indeed a large part of the book is devoted to this concept). The authors built a little more repetition into the book than I personally found necessary by doing the same analysis on mirror image postions. This is not a major downside as some will appreciate the review and others will simply skip a few pages here and there.

The second issue concerns the use of the terms free trade or risk free trade. The reality is the trade was not free and there is a price. The price may have been actual money, foregone opportunities, or increased risk. Sometimes the authors mention the cost, other times they do not.

An example of a not so free "free trade" would be to buy a call have the stock rise, sell a higher priced call for what you paid for the original. You now have a bull spread. This is free in the sense you now have a spread position at no cost. However it could end up costing you if the stock drops because the spread could become worthless and you could have sold your long call outright. The concept is good but I find the wording to be troublesome.

Overall I believe the money spent on this book was a pittance compared to the money made or saved by reading this book and I am very glad to have bought it.

58 of 59 people found the following review helpful:

4.0 out of 5 stars Not groundbreaking, but very good nonetheless..., June 25, 2004

By	Rob Ryley "Robert" (Northeast NJ) - See all my reviews

The Option Trader's handbook is a bit more in-depth than most basic option trading texts in that it explains what to do to after you have entered a position. Unlike trading a stock or future, with options, there are many possibilities. Other books too often neglect the adjustment part of a trade.

Most option books describe various spreading strategies, but I know many novice traders complain about picking a directional spread (bull call or bear put), getting the direction correct, only to lose money because the spread still hasn't reached its maximal potential because of time value still remaining. This book tells you what to do in order to keep much of the profits without increasing risk.

Many of the tactics and adjustments described were alluded to in McMillian's _Options as a Strategic Investment._ But that thick tome occasionally left out a few points complete novices might not pick up. So if you trade stock, long options, or spreads, and want to figure out what to do to limit risk, this will explain things clear and simple language.

The author clearly demonstrates the beauty of trading options in addition to the underlying security. There are so many ways to repair a losing position, minimize, or eliminate the risk of loss, I am amazed that options have the risky reputation they do.

The one danger with all of these adjustments, however, is that you spend too much time on a trade trying to come out with a small profit, or break even. From a psychological POV, this knowledge could be dangerous in that you fail to admit a trade hasn't worked. Rather than take the loss, you make adjustments, and focus your energy on breaking even, rather than looking for a trade to make you whole, and then some.

One of the negatives--I was hoping the authors would go into more detail on various delta neutral trade adjustments. There was much discussion on adjusting long or short positions, but not much at all on diagonal spreads, or various types of ratio spreads.

Another issue--there is some advice that strikes me as mistaken.
The author advises selling an in-the-money call option on a stock you own to hedge against a decline while avoiding short term capital gains (p. 89). My understanding is that the IRS considers this a "constructive sale" and either you are taxed (if you get assigned) or your holding period starts over.

But aside from this, the book deserves a place on the shelf of every trader.

100 of 107 people found the following review helpful:

4.0 out of 5 stars Good book to learn but not to make money, September 20, 2004

By	Allen Morrison "traderpro" (Manhattan , New York) - See all my reviews (REAL NAME)

Is there a difference between learning and making money? As a professional trader my main goal now is to find practical ideas that make money. During my first year of trading , my goal was to learn as much as I can about the business of trading regardless of how profitable the information is. As I gained experience I started weeding out concepts and techniques that are not profitable.
My experience in trading has proven to me that simple concepts applied effectively work best especially in options. In this book most concepts while understandable are elaborate option strategies with frequent position restructuring to adapt to the market. While it is always good to adapt,frequent changes cost you commissions and reduce potential profits.
In addition success in option trading highly depends on the traders ability to assess the short term movement of the underlying stock using appropriate technical indicators. It would have been of great help if technical indicators used in assessing stock movements were combined with option strategies .
AS an example. let us say you are interested in selling a covered call on your stock. The most important peice of information is not how much premium you will make if the stock moves down by a certain amount by expiration and what position changes you will need to make if the stock goes up or against you.What you really need to know is whether the stock is about to reverse down, if that is the case you sell the call and plan to buy it back when the stock falls to a certain support level as indicated by your Stock technical trading system. If not then selling the covered call is a bad idea no matter what the P/L chart says.
If you are an academic type person, a professor, college student or someone who wants to learn , this is a great book and that is why I gave it 4 stars. If on the other hand your goal is actually to make money , you need to look to other books.One I found useful is"generate thousands on your stocks without selling them" by Elias.where the concepts are less academic and more geared to making money.