The Complete Guide To Option Selling: How Selling Options .

Transcription

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CONTENTSAcknowledgementsIntroductionPart I: SellingOptions: Why and

How it Works1. The Option Seller’sSecret: Excelling in theWorld’s MostUnderrated (andUndiscovered)Investment Strategy2. The “Who” of SellingOptions: Insights From30 Years in the OptionsMarket

3. Why Aren’t You SellingOptions? The KeyAdvantages of OptionSelling4. Buying Options VersusSelling Options: WhoWins?5. Option Selling onSteroids: AnIntroduction to FuturesOptions

6. SPAN Margin: YourKey to High ReturnsPart II: OptionSelling Strategy andRisk Control7. How to Pick the RightOption to Sell: LessonsLearned from ThreeDecades in the Field8. The Use and Abuse of

Spreads: How to KeepThem from Taking YourMoney9. Recommended Spreads:The Few and the Proud:Spread Strategies ThatReally Work for theIndividual Investor10. The Best Option-SellingStrategy Ever: The RatioCredit Spread

11. Option-SellingMechanics: Quick Tipson Liquidity, Timing,Order Placement,Assignment, LimitMoves, and More12. Managing Your OptionSelling Risk: DefenseWins ChampionshipsPart III: MarketAnalysis and Option

Selling13. Fundamentals: TheDirty Little SecretAbout how MoneyReally Gets Made inCommodities14. Key Fundamentals ofSelect Markets: What toWatch, Where to FindThem15. Seasonal Tendencies in

Option Selling: A MostPotent Profit Formula16. The Best Markets forSeasonal Option Sales:A Primer for SeasonalNeophytes17. Volatility Simplified:All You Need to KnowAbout the MostMisunderstood OptionComponent

18. How to Structure YourOption-SellingPortfolio: Tips onBuilding Your PremiumLadderPart IV: GettingStarted19. How to Avoid theMistakes New OptionSellers Make: LearnThem Here and Save

Yourself Time, Money,and Headaches20. Finding a Good Brokeror Money Manager: TheBest Trading DecisionYou’ll Ever Make isChoosing the RightProfessional21. Option Selling as anInvestment: FrequentlyAsked Questions

22. Pulling It All Together:A Quick Review ofWhat You HaveLearnedReferences andResourcesIndexAbout the Authors

ACKNOWLEDSpecial thanks to our friendsat Moore Research Center,ivolatility.com,TheHightower Report and CQG,Inc. for their contributions ofcharts, graphs and data to this

book. You guys are the bestin the business.Also a special thanks toour associate, David Mevoli,for his help in finding,assembling and researchingfacts, charts, graphs andwhatever else we asked himto do. You are a true Pro.Most of all, we thank ourclients, past, present andfuture, without whom all ofthis would not be possible.

You are the sharpest, mostelite investors in the worldand we are honored to serveyou.

INTRODUCTIOCongratulations.You havejust purchased a book thatwill fundamentally changethe way you view investingfor the rest of your life. Manybooks promise this, but few

deliver. You will find thatthis one does.Making money work foryou has become increasinglycomplex and difficult in thepast several years. The worldas we knew it for manydecades is evolving rapidly—in some cases, too rapidly forourliking.Traditionalvehicles such as stocks,bonds, and real estate eithergo stagnant or dive and climb

with the rate and speed of acrashingfighterjet.Politicians and bureaucratsnow meddle and attempt toinfluence what should be andonce were free markets. Theeconomy lurches and stallsunder the same burdens.Much of what markets doseems artificial. For marketnews, we watch C-Span (forgovernment debates) as muchas CNBC.

You, the investor, theperson who worked hard andnow wants your money towork hard for you, is caughtin the crossfire. Even in goodtimes, investors are wary ofwhat comes next. There is noconsistency. Nothing to grabonto. Nothing to make youfeelconfidentabouttomorrow. The only constantis change.Many investors I know

are happy to make any return,let alone double-digit returns.And 20%, 30%, 40%, even50% returns on a consistentannual basis? That soundslike fantasy to most. Does itto you?Are you exhausted fromthe “buy and hope” style ofmodern investing? Are youtired of your money beingheld hostage to the pricedirection of stocks or other

assets? Do you feel powerlessto the forces of government,the media, the economy, orgeopolitics?Wouldn’t it feel likefreedom and self-sufficiencyto have something that canwork year in and year outregardless of what is going onin the world, the stockmarket, government, or thecentral bank? How would itfeel to have the confidence of

knowing your investment canexcel in nearly every kind ofmarket scenario?If you are serious aboutmaking your money work foryou, about making realreturns in a consistentmanner, regardless of whatdirection markets are moving,you are about to get somegood news.There is a way to win.Casinosandinsurance

companies know the secretand use it to make billions ofdollars every single year. Onehosts blackjack games andone trades policies forpremiums. But both areplaying the same game. Theyare playing and profitingfrom odds—odds that aretilted deeply in their favor.You can use the verysamestrategyasthatemployed by these two

staggeringlyprofitableindustries. You can do it withthe little-known and widelyunpublicized strategy ofselling options.Donecorrectly,themarket condition, the politicalclimate, or the time of yeardoesn’tmatter.It’scompletely independent ofstocks, bonds, or real estate.And the best part? Evenfor those familiar with buying

or selling options, very fewindividual investors know theconcept described in thefollowing pages—the conceptyou are about to learn.Warning: This book mightnot be for you. If you arelooking to get rich overnightby turning a small chunk ofchange into a fortune, moveon to the next option book. Ifyou are looking for 1001ways to “trade options”

written in a textbook format,please move along. If youlike to listen to flashy TV orInternet option gurus (whohave never managed moneyin their lives), who will tellyou all of the easy riches tobe had if only you had their“option knowledge”—wrongplace.This book focuses on onesimple strategy applied to anunderutilized asset class. And

it can be strikingly effective,if you know the rules (hint:most do not).Gurus, books, and coursesthat promise to teach you“everything there is to know”about options are frankly fullof BS. I have been tradingoptions for 30 years and I canassure you, I still have onlyscratched the surface of“everything there is to know.”Most option books make this

huge promise only to rehashthe same basic commoninformation—they show youwhat to do, they just don’tshow you how to do it.That is because most ofthe guys writing these books,courses, and hosting TVshows are not professionalmoney managers. Hard truth:if they were such outstandingoption traders, they would betrading professionally. That is

where the money is and thatis where the cream rises to.The best option traders in theworld are likely guys whosenames you have never heard.I make no secret of thefact that I manage money fora living and that I am wellpaid for that task. I also makeno secret that part of themotivation for writing thisbook is to attract newinvestors/clientstomy

practice. That being said,most people reading this bookwill not become my client.First and foremost, mostdon’t have enough capitaland/or will otherwise notqualify to become a client ofmy firm. More so, however,there are those who have lesscapital, those who want to dothings for themselves, orthose who simply want a parttime semi-passive method ofgenerating income or growing

wealth. If this is you, thisbook is very much for you,too. This knowledge shouldnot be reserved simply forinvestors of means. It causesme no harm to share it withyou. In fact, I consider it anobligation.With the popularity ofoptionssoaringamongmainstream investors since2009, there seems to be awealth of option information

flooding the market. Some ofit is good. Most of it is utterlyuseless to the individualinvestor trying to increase hisor her net worth.You plunked your moneydown for this book, youdeserve to get something youcan really use to makemoney. If we never crosspaths again, it is my sincerehope that you can say thatthis book made you money—

hopefully a lot of it.It is also my hope thatyou keep it in a separateplace, away from your otheroption books, so as not tocontaminate it.Unlike most of the gurusyou see advertising theiroption knowledge, I have nocourse, seminar, or CDcollection to sell you. Youcan rest assured that theknowledge you are obtaining

here comes from a real-lifeportfolio manager who hasexecutedthestrategiesexplained thousands of times.This is the real stuff—notalways as neat and pretty asin the textbooks, but blunt,unpolished, and effective.You can take the knowledgeyou gain from this text aloneand begin implementing it ina portfolio. No 1001 waysneeded when you find onethat works consistently.

Mostinvestmentortrading books aspire to teachyou how to do somethingbetter (buy the right stocks,time trades better, see adifferent pattern, etc.). Thisbook will introduce you to analtogether different way ofgenerating capital that hasexisted only in a ape. As you will find,its participants skew to high-

net-worth investors, hedgefund managers, and privatemoney.We thought it time thatsomeone brought it to yourattention.How do we ng this strategy forthe last 15 years. WhenMcGraw-Hill asked us to do athird edition of this book, we

could not pass up theopportunity to share with thegeneralinvestmentcommunity something theycould be doing to reallyempower themselves.Be warned: In this book,you are going to venture intoan asset class that mightinitially make you feeluncomfortable. Bear with it. Ipromise you it is not asdifficult or as intimidating as

you might think. It has simplynever been explained to youproperly before.If you are a stock optionguy who thinks you areinterested only in sellingoptions on shares, I urge younot to put this book down yet.You are going to learnsomething here that will opena whole new world to you. Ipromised to change the wayyou look at investing for the

rest of your life, and I mean itfor the stock option guys, too.You will find this bookavoids the same, tired ful Greek alphabet soupthat plagues most booksabout options. Quite thecontrary. Selling optionsdoesn’t have to be difficult.You will find this booksimple and surprisingly easy

to follow. Common sense, nota fancy Greek calculator, isall that is required.In addition, the lessonsand concepts revealed herehave not been “theorized”and calculated from thecomfortable confines of aclassroomoruniversitylibrary. This is hard-wonknowledge, honed in the openwarfare of market

11. Option-Selling Mechanics: Quick Tips on Liquidity, Timing, Order Placement, Assignment, Limit Moves, and More 12. Managing Your Option-Selling Risk: Defense Wins Championships Part III: Market Analysis and Option