Options Professional

 Table of Contents

Lesson 1: Options Basics……………………...............................

1

1.1 The Call Option......................................................................................... 1

1.2 The Put Option........………………................................................................. 2

1.3 Rights and Obligation..……………...............................................................

5

Lesson 2: Synthetics............................................................

7

2.1 Basic Synthetics……................................................................................... 7

2.2 The Married Put....................................................................................... 9

2.3 The Six Basic Synthetics............................................................................

11

Lesson 3: Introduction to the Box.......................................

15

Lesson 4: Butterflies and Condors: Establishing Vertical

Spread Equivalencies..........................................

19

Lesson 5: Pin Risk................................................................

27

5.1 Recognizing Pin Risk................................................................................. 27

5.2 Pin Risk and Reversal / Conversion..........................................................

29

Lesson 6: The Option Greeks and Their Applications..........

36

6.1 Delta......................................................................................................... 37

6.2 Gamma..................................................................................................... 44

6.3 Theta........................................................................................................ 47

6.4 Vega.......................................................................................................... 49

6.5 Rho........................................................................................................... 53

6.6 Greeks and Synthetics.............................................................................. 57

6.7 Additional Applications of the Option Greeks..........................................

58

Lesson 7: Volatility.............................................................

66

7.1 Statistical Volatility................................................................................... 66

7.2 Implied Volatility...................................................................................... 68

7.3 Interpreting the Results............................................................................ 70

7.4 Statistical vs. Implied: Which Volatility is More Accurate?......................

71

Lesson 8: The Interest Component.....................................

72

8.1 Interest in the Options Marketplace........................................................ 72

8.2 Simple Interest......................................................................................... 75

8.3 Compound Interest.................................................................................. 76

8.4 Interest Applied to Option Prices.............................................................

78

Lesson 9: Dividend Component..........................................

80

9.1 Dividends.................................................................................................. 80

9.2 How Dividends Affect Option Prices........................................................

82

Lesson 10: Call Early Exercise.............................................

86

10.1 Early Exercise and Assignment................................................................. 86

10.2 Call Early Exercise..................................................................................... 87

10.3 Call Early Exercise and the Ex-Dividend Date...........................................

90

Lesson 11: The Dividend Play.............................................

93

11.1 The Dividend Play..................................................................................... 93

11.2 Using the Dividend Play............................................................................

95

Lesson 12: Practical Applications for Early Exercise...........

99

12.1 The Long Call Spread................................................................................ 99

12.2 Time Spreads............................................................................................ 101

12.3 The Box.....................................................................................................

102

Lesson 13: Put Early Exercise..............................................

105

13.1 Put Early Exercise..................................................................................... 105

13.2 Put Early Exercise and the Ex-dividend Date............................................ 109

Lesson 14: The Interest Play...............................................

115

14.1 The Interest Play....................................................................................... 115

14.2 Using the Interest Play.............................................................................

117

Lesson 15: Time Spreads for Credits...................................

121

15.1 The Difference between American and European Settled Options......... 121

15.2 The NDX Roll- An Example of a Time Spread Placed for a Credit.............

122

Lesson 16: Introduction to Put-Call Parity..........................

126

16.1 Put-Call Parity........................................................................................... 126

16.2 Evaluating and Pricing Options.................................................................

129

Lesson 17: Put-Call Parity: A Quantitative Explanation......

132

Lesson 18: The Roll.............................................................

141

Lesson 19: Program Trading and Jelly Rolls.......................

149

19.1 Program Trading....................................................................................... 149

19.2 Jelly Roll....................................................................................................

156

Lesson 20: Using the Box for Option Pricing.......................

167

Lesson 21: Interest Rates and the Box................................

171

Lesson 22: Stock Split.........................................................

175

Lesson 23: Probability and Its Relevance to Option Pricing

179

23.1 Probability and Volatility in Option Pricing.............................................. 179

23.2 Skew in Option Pricing..............................................................................

186

Lesson 24: Hard to Borrow Stocks.....................................

195

Lesson 25: Practical Applications for Adjusting and

Closing Trades............................................

200

25.1 The Difference between a Good Trader and a Great Trader.................... 201

25.2 Exit Scenarios for Naked Options............................................................. 203

25.2 Exit Scenarios for Vertical Spreads........................................................... 215

25.2 Conclusion................................................................................................ 225