Index 1 A Acquisition and merger risk, 47 Alligator spread, 56, 69 Allocation of risk, 26 Alpha risk, 45 47 Amazon.com, 47 American Stock Exchange (ASE), 166 Anchoring, 51 Andersen, Arthur, 48 Annualized return, 206, 207, 215 220, 222, 223 Anti-straddle rule, 56, 139 Aristotle, 5 Asset allocation risk, 44 45 Associative thinking, 52 At the money (ATM), 14, 18, 19, 32, 75, 102, 136, 140, 200, 201, 203, 205, 222, 239, 240 B Bankruptcy risk, 48 49 Bear call spread, 56 58 Bear put ladder, 57, 58 Bear put spread, 58, 59 Bear spread, 56, 59, 60, 68, 73, 90, 95, 120, 124, 132 Beta risk, 45 47 Bid/ask spread, 55 Black-Scholes pricing model, 21 Blue chip stocks, 142, 208 Bollinger Bands, 17, 18, 75, 142 Boston Stock Exchange (OMX BX), 8 Box spread, 60 62 Breadth of trading, 16 Breakeven rate of return, 38 Breakouts, 143, 208, 234, 235 Bull call ladder, 62, 64 Bull call spread, 64, 65 Bull put ladder, 65, 66 Bull put spread, 66, 67 Bull spread, 60, 67, 68, 90, 95, 120, 124, 132 Bureau of Labor Statistics (BLS), 38 Butterfly spread, 33, 56, 68, 69, 132 Buy-write, 69 1 Note: Page numbers followed by n refer to notes. The Author(s) 2018 M. C. Thomsett, The Complete Options Trader, https://doi.org/10.1007/978-3-319-76505-1 243
244 Index C Calendar combination spread, 69, 104, 107, 108 Calendar spread, 70, 71, 73, 104, 107, 109 111, 116, 132, 136 Calendar straddle, 70, 71 Capital gains and losses, 145, 224, 237 238 Chicago Board of Trade (CBOT), 8, 10 Chicago Board Options Exchange (CBOE), 8, 10, 41, 43 Chicago Mercantile Exchange (CME), 10 Collar, 71, 72 Collateral risk, 39 41, 56, 116 Combination, 1, 20, 22, 26, 28, 34, 40, 42, 43, 56, 62, 63, 72, 73, 78, 79, 86, 87, 89, 92, 94, 107, 120, 132, 136, 204, 208, 210 211 Condor, 73, 74, 91, 121, 132 Confirmation bias, 51 52 Consumer Price Index (CPI), 36, 37 Contingent buy, 73 Contingent sell, 75 Conversion, 75, 76, 149, 160, 185 Cost of carry, 150, 206 Covered calls, 2, 13, 21 22, 31 34, 36, 39, 41 43, 45, 56, 69, 71, 75 80, 113, 119, 120, 128, 132, 136, 206 211, 216 224, 229, 238, 241, 242 Covered combination, 78 80 Covered put, 102 Covered short straddle, 80 Covered strangle, 80, 81 Credit spread, 80, 84 Current ratio, 150, 231, 232 D Debit spread, 58, 61, 81 Debt to total capitalization ratio, 231, 232 Delta hedge, 81 Delta spread, 82 Derivatives, 10, 16, 26 28, 152, 200, 201 Diagonal spread, 64, 82, 103, 132, 136 Diversification risk, 44 45, 228 230 Dividend yield, 31, 153, 206 208, 214, 221, 222, 224, 228, 232 Dow Jones Industrial Average (DJIA), 46, 47 Downside protection, 76, 77, 113, 126, 154, 210 E Earnings surprises, 29, 49 51, 116 Earnings test, 208, 231 Eastman Kodak, 49 Effective tax rate, 37 39, 143, 197 Enron, 48 Equifax (EFX), 48 Exchange-traded fund (ETF), 1, 12, 156 Expected return, 157, 213 215 Experience risk, 42 43 Expiration, 7, 8, 10 12, 14 16, 22, 28 32, 34, 35, 40, 42, 43, 55 57, 60, 63 65, 68, 70 73, 75 78, 80, 82, 84, 86, 89 95, 97 99, 103, 104, 107, 109, 113, 116 126, 128, 130, 132, 133, 157, 158, 199 206, 211, 214 216, 218, 219, 222, 223, 238, 239 Extreme events, 13 Extrinsic value, 16, 35, 158, 202 205 F Fortune 500, 48, 49, 53n13 Forward roll, 32, 34, 35, 43, 118 Fundamental risk, 27, 47, 48 Fundamental volatility, 161, 231
Index 245 G Gould, Jay, 7 Government National Mortgage Association (GNMA), 10 Gut strangle, 82, 84, 85 H Hedge, 1, 2, 4, 5, 20, 25, 33, 44, 47, 75, 86, 94, 116 118, 122, 132, 200, 214, 227 229 Hedge ratio, 86 High-beta stocks, 27 High-risk trading, 25 Historical volatility, 16 18, 28 30, 199, 200, 204, 206, 207, 215, 228, 229, 233 History, options market, 5 11 Horizontal spread, 70, 82, 86, 132, 136 I Implied volatility, 16 18, 28 30, 35, 163, 199, 200, 202, 204 207, 215, 228, 230, 232 Inflation risk, 35 36, 164 Interest, 1, 6, 8, 10, 17, 40, 94, 126, 164, 165, 199, 206 207, 224, 232, 241 International Stock Exchange (TISE), 8 In the money (ITM), 14, 16, 18, 19, 29, 31, 32, 34, 35, 42, 58, 60, 65, 67, 73, 77 82, 84, 94, 102 104, 116 119, 128, 133, 163, 200 205, 239 242 Intrinsic value, 15, 16, 18 19, 29, 31, 34, 35, 60, 63, 70, 72, 75, 79, 81, 86, 89, 94, 100, 102 104, 112, 136, 165, 199, 200, 202 205 Investor, 51 Investor psychology, 51 Iron butterfly, 86, 122 J Jump-diffusion model, 215 K Kansas City Board of Trade (KCBT), 8 Knowledge risk, 3, 42 44, 209 Kroger, 47 L Leg in/leg out, 89 Leverage, 6, 10, 26, 28, 39, 40, 45 46, 89, 98, 167 Liquidity risk, 39, 41 42, 168 Long call, 19, 20, 23, 33, 35, 41, 42, 57, 60 65, 70, 73, 75, 82, 86 89, 91 94, 98 100, 104, 107, 109, 112, 115, 116, 119 123, 133, 134, 136, 205, 218, 238 Long call butterfly, 90, 91, 120 Long call condor, 91, 92 Long combination, 72, 92 Long iron butterfly, 86, 87, 92 94 Long put, 19 21, 23, 28, 41, 44, 57, 58, 60, 61, 66, 68 72, 75, 82, 89, 93 96, 99, 103, 104, 109, 116, 122 124, 126, 127, 133, 134, 208, 210, 238 Long put butterfly, 95 97 Long put condor, 96 98 Long stock (synthetic), 21, 23, 33, 44, 76, 92, 94, 98, 99, 113, 120, 128, 135, 136, 206, 209, 224, 239 Long straddle, 70, 99, 100, 132 134 Long-Term Equity Anticipation Securities (LEAPS), 10, 15, 23n7, 29, 30, 73, 75, 166, 169, 214, 238 Loss aversion, 51, 201 Lost opportunity risk, 21, 32 33, 41, 169
246 Index M Magical thinking, 51, 52 Margin calculator, 41 Margin risk, 39 41 Market risk, 2, 3, 13, 15, 21, 22, 25 52, 72, 75, 94, 102, 128, 170, 200, 208, 228, 229 Married put, 100, 101, 135, 241 Merton, Robert C., 215 Moderate and neutral strategies, 33 35 Moneyness, 18, 19, 89, 172 Money spread, 101 Monsanto, 50 Monsanto (MON), 50 N Naked option, 3, 34, 42, 101, 136 Naked put, 20, 22, 34, 102, 128, 132, 203, 209, 211 Neutral hedge ratio, 102 Neutral position, 102 New York Stock Exchange (NYSE), 7, 36, 174 O Offsetting positions, 44, 56, 86, 89, 94, 120, 240 241 Option selection, 28, 224 Options Clearing Corporation (OCC), 8, 12 Out of the money (OTM), 14, 18, 19, 31, 32, 34, 35, 41, 58, 60, 62, 65, 67, 70, 71, 77, 80 82, 102, 103, 113, 116, 119, 128, 130, 131, 133, 177, 199 205, 211, 219, 222, 239, 240 P Pacific Stock Exchange (PSE), 8 Paper loss, 33, 78, 210, 211 P/E ratio, 177, 232 Philadelphia Stock Exchange (PHLX), 8 Pinning, 178, 201 Portfolio risks, 4, 21, 39, 41, 46 Premium, 216, 2, 11 23, 28 31, 34 36, 40, 41, 43, 55, 67, 72, 76 82, 84 86, 88, 89, 91, 93 98, 100 103, 113, 119, 120, 127, 129, 131, 139, 199, 202 207, 209 211, 213, 218 219, 221 223, 227 229, 238, 242 Price discovery, 13 Price spikes, 16, 34, 50, 205, 233 Price volatility, 15, 17, 28, 208, 233 Proximity and price, 14, 200 203 Purchasing power, 35, 36, 38, 181 Put diagonal spread, 102, 103 Put ratio backspread, 103, 105 Q Qualified covered call, 32, 78, 182, 239, 241 Qualified retirement plans, 242 R Ratio backspread, 104 Ratio calendar combination spread, 69, 104, 107, 108 Ratio calendar spread, 104, 107, 109 111, 132 Ratio call spread, 109, 112, 113 Ratio put spread, 113, 114 Ratio spread, 82, 103, 104, 113, 132 Ratio write, 22, 33, 113, 115, 120, 136, 195, 210 Reputation risk, 48 49 Return calculations, 77, 78, 213, 215, 223 Return if closed, 223 226
Index 247 Return if exercised or unchanged, 220 223 Revenue test, 231 Reversal, 34, 51, 115, 166, 185, 224 Reverse calendar spread, 116, 132 Reverse hedge, 116 118 Risk tolerance, 20, 36, 45, 209, 210 Rolling, 31, 32, 34, 35, 43, 55, 56, 73, 102, 117 119, 206 S Sage, Russell, 7 Securities and Exchange Commission (SEC), 29 Short call, 12, 19, 21 23, 31 35, 42, 57, 60 64, 67, 70, 71, 73, 75, 77, 78, 80, 84 89, 91 93, 102, 104, 107, 109, 111, 113, 118 124, 126, 129, 131, 133, 136, 206, 208, 211, 216, 218, 227, 237 240 Short call butterfly, 120, 121 Short call condor, 121, 122 Short combo, 122 Short iron butterfly, 86, 87, 122 124 Short put, 19, 21 23, 34, 37, 57, 58, 60, 62, 65 68, 73, 75, 78, 80, 84, 85, 92 95, 97 99, 103, 104, 109, 113, 115, 119 125, 129, 131, 133, 136, 206, 209, 211, 238, 240 Short put butterfly, 124, 125 Short put condor, 125, 126 Short stock (synthetic), 23, 122, 126 128, 136 Short straddle (covered), 128, 129 Short straddle (naked), 128, 130 Short strangle, 130 133 Simulated straddle, 116, 132 Single-option speculative strategies, 20 21 Speculation, 2, 4, 6, 7, 20, 28, 46, 89, 94, 120, 124, 227 Spreads, 8, 33, 55, 141, 206 Sprouts, 47 Standard & Poor s 100 index (OEX), 8 Standardized terms, 7, 11, 13 Stock selection, 207, 208, 226 235 Straddles, 22 23, 42, 72, 86, 87, 89, 92, 94, 102, 116, 120, 122, 124, 132, 133, 210, 241 Strangle, 23, 82, 132, 133, 210, 229 Strap, 133, 134 Strategic considerations of taxes, 241 242 Strategy ranges, 20 Strike price, 7, 11, 12, 14, 20 22, 31, 43, 56, 60, 62, 65, 68, 70, 72, 73, 77, 78, 82, 89, 91, 94, 102, 104, 109, 113, 119, 124, 132, 133, 136, 191, 199 202, 204, 206, 209, 210, 218, 219, 221, 223, 238 240 Strip, 134, 135 Substantially identical positions, 240 Successor positions, 241 Support and resistance, 234 Swing trading, 21, 28, 46, 89, 94, 119, 124, 205 Synthetic long call, 100, 135 Synthetic long stock, 23, 92, 98, 135 Synthetic positions, 23, 36, 98, 99, 127 Synthetic put, 135 Synthetic short call, 136 Synthetic short put, 136 Synthetic short stock, 23, 122, 136 Synthetic straddle, 136 T Tax put, 136 Tax risk, 32, 35 38 Technical selection indicators, 233 235 Thales the Milesian, 5 Time spread, 132
248 Index Time value, 10, 15, 16, 28 31, 34, 35, 42, 56, 61, 62, 70, 73, 75, 77, 79 81, 102 104, 113, 116 118, 128, 130, 132, 133, 192, 202 206, 211, 218 Trading costs, 55, 56, 68, 69 Trading range, 15, 16, 34, 49, 142, 182, 193, 200, 233 235 Tulipmania, 6, 7 Types of options (calls and puts), 92 Unqualified covered call, 32, 78, 239 240, 242 Unrealized losses, 33 V Value Line, 8 Vertical spread, 64, 82, 132, 136 Volatility risk, 27 Volatility value, 16 U Uncovered calls, 75, 194 Uncovered option, 194 Underlying security, 1, 2, 6, 7, 11 13, 16, 17, 19, 26, 28, 195, 200, 201, 230 W Wal-Mart, 47 Wash sales, 37, 136, 196, 237, 240, 241 Whole Foods, 47 Working capital test, 231