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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

Description

THE SECRET TO PROFITING FROM OPTIONS:

THINK LIKE A PROFESSIONAL OPTION TRADER, NOT A STOCK TRADER!

  • Understand the unique dynamics of options trades and markets
  • Practical, concise insights based on actual option trading scenarios
  • Master trade selection, risk management, and more
  • By professional options trader Michael Benklifa, best-selling author of Profiting with Iron Condor Options

Want to win in options? You must think like a professional option trader. Step #1: Get rid of the habits you learned in stock trading: they’re killing you! Step #2: Understand the real dynamics of options markets: they are radically, fundamentally different.

 

Example: When stock traders look at price, they see information. Option traders see probability, time, and volatility. Example: Stock trading is about having an information advantage. Option trading can be about exploiting a lack of information. Example: Stocks either go up or they don’t. Option trades can be structured for a 90% probability of success.

 

With dynamics like these, option trading is like nothing else. Through practical, simple examples, Michael Benklifa will help you understand what’s really going on here…so you can consistently build trades that earn profits and control risk!

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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