High Performance Options Trading

The essential resource for the successful option trader

High Performance Options Trading offers a fresh perspective on trading options from a seasoned options trader programmer/engineer, Leonard Yates. Drawing on twenty-five years of experience as an options trader and software programmer, Yates has written this straightforward guide. First he provides readers with a solid foundation to trading options, including an introduction to basic options terminology, a thorough explanation on how options are traded, and specific trading strategies. Accompanied by the OptionVue Educational website, this hands-on guide to the options market is a thorough and essential resource for any trader looking to increase his or her practical knowledge of options.

A Note from the Author.

Introduction.

CHAPTER 1: The Language of Options.

The Basics.

Listed Options.

Nomenclature.

Longs and Shorts.

A Bit More Terminology.

Offsetting Option Trades.

Expiration, Exercise, and Assignment.

American versus European.

Quotations.

The Special Properties of Options.

Time.

Volatility.

How Options Respond to Changing Conditions.

The Greeks.

The Role of the Market Maker.

Volume and Open Interest.

CHAPTER 2: Option Strategies.

Long Call.

Short Covered Call.

Short Naked Call.

Long Call with Short Stock.

Long Put.

Short Covered Put.

Short Naked Put.

Long Put with Long Stock.

Equivalent Strategies.

Combinational Strategies.

CHAPTER 3: Volatility.

Volatility Trading—Buying and Selling Volatility.

Tools of the V-Trade.

Selling High Volatility.

Buying Low Volatility.

Delta-Neutral Trading—In a Nutshell.

Seasonal Patterns in the Grains.

Other Commodities.

Volatility Skew—What Is It and How Can I Use It?

Some Words of Warning about Naked Writing.

The Relationship between Volatility and Price.

CHAPTER 4: The Option Trader’s Arsenal.

Buying Nearby Options—The Swing Trader’s Perfect Tool.

Debit Spreads—The Calm Approach.

Strategies for Trending Markets.

The Horizontal Spread—A Good Strategy in a Sideways Market.

Credit Spreads—Say “Don’t Go There”.

Condors—Two-Winged Creatures.

The Backspread—A Directional Strategy that Costs Nothing If You Are Wrong.

Covered Writing—Enhancing Your Returns.

LEAPS—An Alternative to Stock.

The Synthetic—Another Alternative to Stock.

The Butterfly Spread—When You Have a Narrow Target Range.

Using the Right Option Strategy.

CHAPTER 5: Special Situations.

Playing Takeovers.

Letting the Options Market Tip You Off on Takeovers.

Covered Writing with Convertible Securities.

Investing in a Rough Market.

CHAPTER 6: Theoretical and Practical Matters.

Options Pricing Models.

Coming Up with the Right Volatility.

Volatility Skew.

What Causes Volatility Skew?

Balancing Factors.

Put/Call Parity.

The Greeks Revisited.

True Delta and Gamma.

Understanding the Limitations of Your Model.

Dealing with Anomalies and Pricing Difficulties.

CHAPTER 7: Tips for Beginners.

The Psychological Battle.

Trading Mistakes and What I Learned.

Some Thoughts on How Trading Fits In with Real Life.

CHAPTER 8: Encore.

Directional Trading Using Pattern Recognition.

Timing the Market Using the VIX.

Why a VIX Spike Stops a Market Sell-Off.

Starting the Business (on a Shoestring).

Business Philosophy.

Glossary.

Index.

Leonard (Len) Yates is a professional programmer with over twenty-five years of experience in software development. He is the President and founder of OptionVue Systems International, Inc., which specializes in options trading software and services. Prior to founding OptionVue Systems International, Len was a software engineer at Tandem Computers, and a hardware and software engineer at IBM Corp. An active options trader with a comprehensive knowledge of corporate finance and financial models, Len has made important contributions in the field of options pricing models since the founding of his company–the most notable being the "Yates adjustment" to the popular Black-Scholes model as applied to American-style puts. Len holds a bachelor of science degree in electrical engineering from Purdue University. The beauty of options trading is that it allows you to maximize your potential reward while minimizing your risk. A small investment in options gives you as much potential for profit as a much larger investment in the underlying asset itself. But trading options successfully requires discipline and knowledge, and those entering this market without proper training may quickly lose confidence–and capital. With High Performance Options Trading: Option Volatility & Pricing Strategies as your guide, you’ll be able to sidestep common options trading mistakes and learn how to profitably make this exciting investment vehicle work for you.

High Performance Options Trading offers a fresh perspective on options trading. Drawing on twenty-five years of experience as an options trader and creator of options trading software, author Leonard Yates provides a straightforward introduction to options for the beginner or intermediate trader and reveals some of the most essential option volatility and pricing strategies currently available.

Written in a clear, easy-to-understand manner, this book offers detailed explanations of the key concepts essential to successful options trading, including:

• The language of options–puts, calls, time decay, expiration, exercise, and assignment
• Options strategies–single-option strategies as well as multi-option spread strategies
• Volatility–its meaning and effects on options
• Special situations–including takeover deals and other restructuring plans
• Theoretical and practical matters–how option pricing models, volatility models, and other essential tools of the trade are best applied in practice
• And much more

High Performance Options Trading also includes an entire chapter dedicated to tips for beginners. You’ll glean inside knowledge of where to look and what to study while preparing for success in the options market.

In sharing both his greatest achievements and biggest disappointments as an options trader, Yates offers a realistic assessment of what it takes to trade options. Filled with in-depth insights and practical examples, High Performance Options Trading will increase your understanding of the options market and shorten your road to success. Accompanied by the OptionVue Educational companion website, this hands-on guide to the options market is a thorough and essential resource for any trader looking to increase his or her practical knowledge of options.

Experts are praising High Performance Options Trading
From OptionVue Systems' Len Yates

"Finally! A book by fellow Boilermaker and option software guru Len Yates! This book is a must-read for anyone interested in a sensibly based, analytical approach to options trading–whether you’re a stock or a future options trader. And the story behind the creation of OptionVue™ is a fascinating bonus."
—Larry McMillan, McMillan Analysis Corp.; author of Profit with Options and McMillan on Options

"An expert on volatility-based trading, Len Yates applies the same practical approach to this book as he has to his highly regarded software. This is not a technician’s white paper, but a thorough, accessible guide that uses his real-life trading history to fully illustrate how you can succeed in the options markets."
—Jim Bittman, Senior Instructor, CBOE’s Options Institute; author of Trading Index Options and Options for the Stock Investor

"For over two decades Len Yates has helped bring options to the masses by way of his groundbreaking software, OptionVue 5. Now, his new book offers the same user-friendly style and insight to the world of options investing. I’m sure I speak for thousands of grateful investors when I say, ‘Well done, Len!’"
—Jon "Doctor J" Najarian, PTISecurities.com; author of How I Trade Options

"Len leads the reader through the complex subject of options by recounting his triumphs and defeats and explaining in plain English the essence of each strategy."
—David Krell, President and CEO, International Securities Exchange (ISE)

"A must-read for all options traders."
—Paul Forchione, Opportunities in Options, Inc.

"From a master of options analytics comes this practical guide to options trading. Beginning and advanced traders alike will appreciate Len’s thorough coverage of options strategies and his easy-to-read style."
—Price Headley, President, BigTrends.com; author of Big Trends in Trading