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Think Like an Option Trader: How to Profit by Moving from Stocks to Options

By Michael Benklifa

Published by FT Press

Published Date: May 22, 2013


The world's fastest growing markets are options markets. Options offer a world of opportunities that are simply unavailable to the stock trader. Trading stocks is like owning a "hammer," but trading options is like owning the whole toolbox. Why, then, do so many investors lose money in options? They lose because they trade options the way they've always traded stocks. To succeed, you must understand options the way professional options traders do. In Thinking Like an Options Trader, Michael Hanania Benklifa will help you do precisely that. When stock traders look at price, they see information. Options traders see probability, time, volatility -- and perhaps even a lack of information. Stock trading is about having more information than the other guy. Options trading can be about exploiting the lack of information. Stock trades have a 50% chance of success: stocks go up or they don't. Options trades can be structured for 90% probability of success. The very nature of trading is transformed by these radically different dynamics. Benklifa reveals those dynamics and shows exactly how to take full advantage of them. Every month, he makes millions of dollars in options trades through his own firm. In this book, he reveals how he approaches these trades, offering practical, concise and actionable insights based on actual scenarios. If you've struggled to profit from options… if you're intrigued by options, but hesitant… if you're succeeding with options but want to do better… this is the book you've been searching for.

Table of Contents

Preface     xi
Introduction: Why Traders Fail     1
Is Failure a Flaw?    2
Blaming Emotions     2
Blaming Systems     3
Successful Traders Versus Successful Trading     5
Trading for a Living     6
Trade for the Right Reasons     6
The Ability to Duplicate a Strategy     7
Correlation Versus Causation     7
Don’t Trade to Make Money     9
Leverage     10
What Kind of Trader Are You?     10
A Single Difference Goes a Long Way     11
A Limited Worldview     13

Chapter 1   Understanding Options     15
What Is a Stock?     15
What Is an Option?     18
The Bet You Wouldn’t Make     18
The Options Trader’s Toolbox     22

Chapter 2  What Is Price?     33
How a Stock Trader Looks at Stock Price     33
How Options Traders Look at Stock Price     37
How an Options Trader Looks at an Option’s Price     48

Chapter 3  Pure Options Trading: Building Your Own Trade     67
Basic Greek Concepts     69
Build 1: Making a Directionless Trade     74
Build 2: Reducing Your Risk     78
Build 3: Augmented Returns     88
Bending the Curve     95
The Options Trader’s Toolbox: Synthetic Straddles     96
Evolving a Trade     98
In-, At-, and Out-of-the-Money Trades     98

Chapter 4  Situational Trading     99
Known Knowns     100
Analyzing Situations     105
Building a Directional Trade     106
Known Unknowns     126
Unknown Unknowns     137

Chapter 5  Risk Management     157
Responsibility in Trading     157
Strategy Is Risk Management     159
How a Stock Trader Measures Risk     160
Defined Risk for Options Traders     163
Layering and Unlayering Trades     164
Trades Cannot Be Fixed, Just Replaced     165
Portfolio Risk     166
Concluding Remarks     168
Appendix: Quantum Physics and Trading—The Price Uncertainty Principle     171
Index     175

Purchase Info

ISBN-10: 0-13-306533-2

ISBN-13: 978-0-13-306533-6

Format: eBook (Watermarked)?

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