Dr. Russell Richards - Trade Options with an Edge

TRADE OPTIONS WITH AN EDGE

Includes Software to Support Your
Decision Making

DR. RUSSELL RICHARDS

Copyright 2017 by Dr. Russell Richards.

Library of Congress Control Number: 2016914061

ISBN: Hardcover 978-1-5245-3819-4

Softcover 978-1-5245-3818-7

eBook 978-1-5245-3817-0

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery Thinkstock.

Rev. date: 02/15/2017

Xlibris

1-888-795-4274

www.Xlibris.com

740065

CONTENTS

PREFACE

I HAVE BEEN INVESTING all my adult life. Probably like most of you, I focused initially on mutual funds and stocks. That was fine as long as the market was rising. However, multiple large market declines convinced me that I had to find a way to make money even when the market was not increasing. That led me to explore options trading.

My initial forays into options trading were not successful. I was enticed by the leverage that options trading provided, and I fell into the trap of going for the home run. It was not until 2012 when I somewhat accidently discovered a new Internet site, tastytrade, that was streaming live programs from 8:00 AM to 4:00 PM EST every trading day. All the programs were about trading (stocks, options, or futures), with most focusing on options trading. I was immediately attracted to the site because the presenters all had good credibilityeach had been a successful floor trader. Furthermore, the approach they prescribed aligned well with my own analytical background. But most importantly, I made money when I used their approach.

I owe tastytrade a big debt of gratitude. After reading this book, you will too. I strongly recommend that you become a tastytrade subscriber. They are now the largest live streaming financial network with over 100,000 viewers. They are amazingly customer oriented. I frequently send e-mails to the founder, Tom Sosnoff, or his sidekick, Tony Battista; and I have always received responses in twenty-four hours or less. Just go to tastytrade.com or download their Apple app or Android app. Or view them on one of their other streaming video offerings. Tastytrade is free. You will not get a better trading education for thousands of dollars.

My approach to options trading is analytical. I recommend that the user consider several metrics before deciding to place a trade or to exit a trade. The metrics that you need should be generated by the trading platform provided by your brokerage firm. Thus, you need only understand what the metrics mean and know how to use them.

All the metrics that I use are provided by TD Ameritrades thinkorswim (TOS) trading platform. I believe TOS is the best and most powerful trading platform available to support trading, and it is available free to anyone with an account at TD Ameritrade. It was the main reason that I transferred all my trading accounts to TD Ameritrade. If the trading platform provided by your broker does not provide the information described in this book, you should seriously consider switching to TD Ameritrade. Trading on an inferior platform is like working with one hand tied behind your back. Tastytrade also provides a very nice trading platform called dough , but since it works in conjunction with TOS, you will still need an account at TD Ameritrade to take advantage of it.

I have developed a software package to support my own trading. It requires any version of Microsoft Excel 2007 to present. It provides all the metrics that I discuss in this book, along with several other useful functions including retirement planning and tax estimation. I am providing that software with this book. I believe you will find it useful. Download instructions are provided later in this book so that readers can access the software.

I am not a professional trader. I have a PhD in mathematical sciences. In my professional career, I have been a tenured professor of operations research, a consultant, a cofounder of three businesses, an entrepreneur, an inventor, a manager of operations research and systems analysts, a systems engineer, and a research and technology manager. I am now retired, but I am registered with the IRS as a securities trader. I spend most of every weekday trading options, futures, and stocks. I consider it a labor of love.

When I seized upon the tastytrade approach, I realized that my background in probability, optimization, decision analysis, systems analysis, modeling, and simulation was perfect for their approach to trading. Then, when I realized the parallel the approach had to the way gambling casinos grind out consistent profits day after day, I was sold. Give me a small edge, give me an opportunity to place lots of small trades, give me good mechanics, provide me with a good trading platform; and I will produce consistent profits. You can do this also. You will learn that it doesnt matter if the market is going up, down, or nowhere. You will have the tools to make money in any kind of market.

You do not have to have an analytical background, but you do need to have an appreciation of probabilities and be systematic in your approach. Since my approach recommends active management of your positions, you should plan to devote at least one hour trading three days every week. This book will teach you the mechanics for successful trading. You need to just grind out results like the casino.

I believe that you will be able to generate consistent returns of 1% to 2% per month. That may not sound like a lot, but when you do it month after month, year after year, the power of compounding returns leads to a sizable portfolio. These returns beat most managed accounts, mutual funds, and hedge funds. You will find very few financial advisors who will do better; and believe me, it is a wonderful feeling to know that you can manage your own money better than almost anybody else.

SOFTWARE: TRADE OPTIONS WITH AN EDGE

I HAVE DEVELOPED A powerful software package over the last several years to support my option trading. The software provides the calculation of all of the metrics and probabilities discussed in this book. In addition, it provides useful tools to support the selection of strategies, the decision to exit an existing trade, and the sizing of pairs trades. It also offers assistance with maintaining inventories of positions, retirement planning, and tax estimation.

I believe you will find the software very useful. That software is provided free to all purchasers of this book. I have made that software available for downloading from my cloud server. You need only follow the download instructions at the bottom of this page. I intend to keep an up-to-date version of the software that you can revisit from time to time and download the latest version using the same instructions.

The software is written in Visual Basic for Applications (VBA). You will need Microsoft Excel (any version from 2007 to present) to run the software. It makes extensive use of the macro features of Excel. Therefore, make sure that you have macros enabled in your instantiation of Excel.

Software Updates and Other Supporting Material

I will update the software from time to time and provide other material for corrections to the book, the results of new important studies, or other material that I think will support your trading. It may also include announcements of additional products. You can access this new material by using the same link provided below. I suggest that you visit the site from time to time to make sure youre working with updated information.