The Option Trader's Workbook- A problem-solving approach PDF

The Option Trader’s Workbook- A problem-solving approach PDF

The Option Trader’s Workbook- A problem-solving approach PDF There’s only one way to become a great option trader: practice. This up-to-the-minute workbook gives you all the hands-on practice you need to become a consistently profitable option trader…without risking a dime! Jeff Augen walks you through every type of trade, showing you exactly how to execute maximum-profit strategies and avoid disastrous trading pitfalls. You’ll start with the basics and then build your skills to master today’s most powerful new strategies. Use this book to perfect your option trading instincts–so when real money’s on the line, you’ll win!

Category: Options

Author: Jeff Augen

Language: English

Free download link: At the end of the post

Introduction

Preface
There are two kinds of successful investors: those who admit to occasionally losing money and those who don’t. Despite claims to the contrary, every investor loses money because risk always scales in proportion to reward. Long-term winners don’t succeed by never losing; they succeed because their trades are well thought out and carefully structured. That said, very few investors recognize the impact of their own trading mistakes.

These mistakes can be subtle. The classic example goes something like this:
1. “I bought calls.”
2. “The stock went up, but I still lost money!”
This frustrating scenario in which an investor correctly predicts a stock’s direction but loses money is incredibly common in the option trading world. Leverage is almost always the culprit. More precisely, it is the misuse of leverage that stems from a fundamental misunderstanding of risk that so often turns investing into gambling with the simple click of a mouse. Option traders are famous for this mistake.

They know, for example, that a sharp rise in the price of a stock can generate tremendous profit from nearly worthless far out-of-themoney calls. But lead is not so easily transmuted into gold. The problem is entangled with complex issues like collapsing volatility, accelerating time decay, and regression toward the mean. Institutional traders understand these issues and they rarely make these mistakes. Thousands of trades have taught them that not losing money is the very best way to generate a profit.

It’s the thousands of trades, winners and losers both, that separate professionals from amateurs. Option trading is just like playing chess: It requires study and practice. The comparison is more valid than you might think. Both chess and option trading are governed by a complex set of rules. Risk analysis is at the center of both games; so is positional judgment and the ability to react quickly. Chess players learn to identify patterns; option traders, in their own way, must learn to do the same.

This book is constructed around these themes. It is designed to let investors explore a vast array of rules and trade structures by solving real-life problems. This approach differs markedly from the catalog of structured trades that seems to have become the contemporary standard for option trading books. Many fine texts have been written on the subject, but most build on this design with slightly different organization or a few novel trading ideas. Collectively they miss the point. Learning to trade options is an active process, best accomplished through doing rather than reading and memorizing. In this regard we have avoided the familiar but bewildering list that includes names like “reverse diagonal calendar spread,” “condor,” and “short strangle.” In their place you will find more descriptive phrases like “sell the near-dated option and buy the far-dated option.” But, more importantly, these descriptions appear in the context of trading situations in which the reader is asked to make a choice, predict an outcome, or design a correction. Moreover, the problems build on each other with each section progressing from basic to advanced.

Our goal was to challenge option traders at all levels. So take your time, work through the problems at a comfortable pace, and, most important of all, make your trading mistakes here instead of in your brokerage account.

Table of Contents- The Option Trader’s Workbook- A problem-solving approach PDF

Preface
Notes   1
Chapter 1 Pricing Basics   3
Summary    42
Chapter 2 Purchasing Puts and Calls    43
Basic Dynamics (Problems #1–#7)   45
Protecting Profit (Problems #8–#19)     49
Defensive Action (Problems #20–#38)      59
Term Structure, Volatility Skews, and Theta (Problems #39–#46)    78
Summary   90
Chapter 3 Covered Puts and Calls     91
Traditional Covered Positions Involving Stock and Options (Problems #1–#23)    93
Pure Option Covered Positions (Problems #24–#28)    115
Summary    123
Chapter 4 Complex Trades—Part 1   125
Vertical Spreads (Problems #1–#15)    126
Calendar Spreads (Problems #16–#30)   136
Diagonal Calendar Spreads Spanning Multiple Expirations and Strike Prices (Problems #31–#34)   154
Ratio Trades (Problems #35–#41)   163
Summary  172

Chapter 5 Complex Trades—Part 2  173
Butterfly Spreads (Problems #1–#8)    174
Straddles and Strangles (Problems #9–#16)  185
Four-Part Trades (Problems #17–#22)   194
Volatility Index (Problems #23–#24)   206
Dividend Arbitrage (Problem #25)  211
Summary   214
Glossary  215
Index   .221

Reviews

“The one thing readers should understand is that Jeff Augen is truly dedicated to educating traders at all levels. Instead of handing out answers, Jeff wants to make sure they understand the concepts he is teaching. He recognizes the value of being able to apply basic knowledge to new situations. Adapting and building on techniques and strategies has made Jeff Augen successful.”
Michelle Gebhardt, Executive Editor, Stocks, Futures, and Options magazine

one of the few great resources for daytrading options, and really understanding all the greeks and moving parts in spreads, straddles, and ratios. strongly recommended on that basis alone.

this is an advanced college level workbook. it is definitely a challenge, but as an intermediate level options trader I really learned a lot more from this book than 50 others I could name. very useful and applicable information here for any options trader, which is rare.

really what makes it great is that it is made for advanced traders, but it’s not mathematical or overly technical. you may need a simple calculator, but the math itself is less than high school, and still i think advanced traders will get a lot out of this challenge. His “Volatility Edge” book is also my #1 recommendation to serious traders.

This is not a fun read. You have to have a serious desire to learn to trade like a professional. Mr. Augen’s advanced trading classes at NYIF were many thousands of dollars, here he’s giving it away to you for $25. Ask yourself if you want black belt training or jazzercise.”- JD

About the author

Jeff Augen, currently a private investor and writer, has spent over a decade building a unique intellectual property portfolio of databases, algorithms, and associated software for technical analysis of derivatives prices. His work, which includes more than a million lines of computer code, is particularly focused on the identification of subtle anomalies and price distortions.

Augen has a 25 year history in information technology. As a cofounding executive of IBM’s Life Sciences Computing business, he defined a growth strategy that resulted in $1.2 billion of new revenue and managed a large portfolio of venture capital investments. From 2002 to 2005, Augen was President and CEO of TurboWorx Inc., a technical computing software company founded by the chairman of the Department of Computer Science at Yale University. He is the author of two previous books: The Volatility Edge in Options Trading (FT Press 2008) and Bioinformatics in the Post-Genomic Era (Addison-Wesley 2005).

Much of his current work on option pricing is built around algorithms for predicting molecular structures that he developed many years ago as a graduate student in biochemistry.

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