Joe Duarte - Trading Options for Dummies

Trading Options For Dummies

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright 2017 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2017910916

ISBN 978-1-119-36370-5 (pbk); ISBN 978-1-119-36371-2(ePub); ISBN 978-1-119-36373-6 (ePDF)

1. Table of Contents

Welcome to Trading Options For Dummies, 3rd Edition!

This book is all about introducing you to option strategies for managing risk, delivering profits, and navigating a variety of market conditions. Yet, unlike other investments books, this one is geared to managing risk first, with the knowledge that profits will follow. With that in mind, the approaches described here focus on reducing potential losses from traditional stock positions and building an option strategy repertoire thats designed to increase your chances of making sound trades whether the markets are moving up, down, or sideways. To incorporate the comprehensive steps required when trading, it also provides discussions on market and sector analysis, as well as things to look for when trying out a new strategy.

An option contract is a unique security that comes with contract rights and obligations. When used correctly, an option contract strikes a balance between the risk of loss, the amount of money you put at risk, and reward, providing you with leverage while still allowing you to reduce overall trade risk. Of course, theres another side to that leverage, increased risk, which will be managed, which is the main reason you should take the time to read through this book carefully. You need to understand the risks and characteristics associated with these contracts.

When applying for options trading with your broker, the broker will send you the reference guide Characteristics and Risks of Standardized Options. This publication, written by the Options Clearing Corporation (OCC), must be distributed by brokers to their clients prior to allowing them to trade options. It describes option contract specifications, mechanics, and the risks associated with the security. Together, that publication and the one youre reading right now help you to understand your risks and use options effectively.

As mentioned, this book is in its third edition. Thats great for you because not only has it stood the test of time, it is updated, and many of the quirks and other technical issues that arose with any books earlier editions have been addressed, making this a highly improved work. And no, Im not being conceited. Of course, nothing is perfect, but as youll find out when you start trading options, the more you do anything, the better it gets.

There are hundreds of trading titles out there, including those focusing on option strategies. This book focuses primarily on approaches aimed at managing risk the consistent theme throughout. By setting it up this way, you can read about different topics while keeping that key objective in mind. So go ahead, jump around to areas that interest you most.

This book can be read from cover to cover or used as a reference guide. Each strategy provided identifies risks and rewards associated with the position. It also identifies alternative strategies to consider for risk management, when applicable. There are a million ways to successfully trade the markets, but certain challenges are universal to all of them. Tools and techniques focused on addressing these challenges are also provided throughout.

To make reading and understanding the world of options trading a bit easier, Ive used some conventions to help you along the way:

• Italics: I provide newly defined terms in italics in all parts and chapters.
• Acronyms: I try to spell out acronyms quite a bit so you dont have to flip around a bunch to find out what VIS (very important strategy) stands for I hate when I have to do that, too.
• Websites: Youll find references to websites that may provide additional information or make a task easier (like the one in the preceding bullet). And if you ever see a website split from one line to the next, rest assured that Ive added no extra hyphens, so type the address in your browser just as it appears. If youre reading the e-book, just tap the link to go to that website.

Heres what I assume about you:

• You have some experience. We are all dummies, but we are not all beginners. If youve chosen this book, you probably have some familiarity with the stock market and the risks and rewards it presents to you. As a self-directed investor, you seek ways to manage those risks and rewards. However, if youre not familiar at all with options or youve just had a little exposure to them, dont worry option fundamentals and mechanics are covered here and may be a great way to improve your knowledge base. Even if you have traded these instruments before, you can consider this a review if youre looking for one.