Options for Volatile Markets: Managing Volatility and Protecting Against Catastrophic Risk

Praise for Options FOR Volatile Markets, Second Edition
"Once again, McMillan and Lehman have created new and insightful updates into the world of derivatives trading. Every time you think you′ve mastered the game, these two industry titans prove you wrong. It′s uncanny. In fact, let me put it this way: If you think you know options markets, think again."
—Richard Bensignor, President and Chief Strategist at Bensignor Strategies, Inc.; Editor of New Thinking in Technical Analysis
"Highly recommended for serious investors aiming to protect their portfolios from the next ′black swan′ event. It′s not a question of ′if′ but ′when.′ Be prepared with the tactics in this book."
—Donato A. Montanaro, Jr., Chairman and CEO, TradeKing
"Options for Volatile Markets provides the reader with time–tested option strategies for capital appreciation, income generation, and limiting losses. As discovered during the financial hurricane of 2008, asset diversification is not enough. Properly implemented, option strategies can be the difference between financial success and failure during volatile times."
—Kenneth G. Winans, CMT, MBA, President and Founder, Winans International; award–winning author and Forbes.com columnist
"The ′new normal′ post–2008 world involves more than just lower returns, it comes with an overhang of serious risk to boot. This book provides clear strategies to both boost returns and protect against ′fat–tail′ risks that can destroy capital."
—Stephen Savage, Managing Partner, Litman/Gregory Asset Management
"Successful investment management over time is not driven by how much one makes, but rather by how much one consistently does not lose. The best investors and traders of which I know focus first on risk management and secondly on profit maximization. Afte r witnessing the financial market volatility of the last decade, absolute returns and consistency of those returns should be a key objective of institutional as well as retail investors going forward. Lehman and McMillan provide a roadmap of creative, intelligent, and purposeful options strategies for achieving exactly this."
—Brian Pretti, CFA, CFP, Chief Investment Officer, Mechanics Bank

Spis treści:
Preface xi
INTRODUCTION
The “New Normal” in Equity Investing 1
CHAPTER 1
Option Basics 7
What Are Options? 7
Exercise and Assignment 14
Positions 17
How Options Are Traded 19
Options in Your Account 22
CHAPTER 2
Option Pricing and Valuation 25
Option Premium 25
Theoretical Value 27
Time Value 28
Volatility 31
Interest Rates 32
Dividends 32
Calls versus Puts 33
Option Skews and Anomalies 34
CHAPTER 3
The Basics of Covered Call Writing 37
Requirements for “Valid” Covered Writes 38
Risk/Reward of a Covered Write 39
Calculating Potential Returns 46
Major Factors Affecting Call–Writing Returns 48
Covered Writing as an Ongoing Strategy 54
Summing Up Covered Writing 57
CHAPTER 4
Implementing Covered Call Writing 59
Follow–Up Actions 59
Behavioral Issues 69
Differing Approaches 70
Selecting Calls to Write 77
Risks 80
Basic Tax Rules for Options 81
Summing Up Implementation 84
CHAPTER 5
Advanced Call–Writing Techniques 87
Writing Calls on “Hot” Stocks 88
Tax Deferral Strategies 89
Covered Writing on Margin 90
Covered Writing against Securities Other Than Stock 93
Partial Writing, Mixed Writing, and Ratio Writing 98
Put Writing 103
Expiration Games 106
Option–Stock Arbitrage 108
CHAPTER 6
Basic Put Hedging 111
Put Hedge Basics 111Advantages 115
Disadvantages 116
Behavioral Implications 123
Put Hedge versus Covered Call 127
Hedging against Catastrophic Risk 129
CHAPTER 7
Advanced Hedging Strategies 131
Put Hedge Follow–Ups 131
Using Put Spreads to Hedge 137
Collars 145
Conclusions on Protective Option Strategies 151
CHAPTER 8
Options on ETFs 153
ETFs in a Nutshell 154
ETF Options 158
Covered Call Writing on ETFs 159
Our Put Hedge and Collar Study on SPY 162
Appendix: Partial List of ETFs with Listed Options 165
CHAPTER 9
Volatility and Volatility Derivatives 171
What Is Volatility? 171
Using VIX as a Market Indicator 173
Volatility Futures 179
Variance Futures 181
The Behavior of VIX Futures 183
VIX Options 191
VIX Option Strategies 199
The Future 204
Acknowledgments 205
About the Authors 206
Index 207

Nota biograficzna:
RICHARD LEHMAN is the founderof RHL Capital, a registered investment advisor, and a part–time instructor of behavioral finance and options at UC Berkeley Extension. He is also the author of Far From Random, and publishes an investment newsletter called the Channelist. Lehman′s financial career spans more than thirty years in product management, marketing, sales, and investment management beginning with an eleven–year stint on Wall Street with E.F. Hutton & Co., Thomson McKinnon Inc., and the New York Stock Exchange.
LAWRENCE G. McMILLAN is the founder and President of McMillan Analysis Corporation. He authors the Daily Volume Alerts, a unique daily service that selects short–term stock trades by looking for unusual increases in equity option volume. McMillan manages option–oriented accounts for individual investors and also publishes the Option Strategist, a derivative products newsletter covering equity, index, and futures options. McMillan̸ 2;s web site, www.optionstrategist.com, twice received a "Best of the Web" award from Forbes magazine. He is the coauthor, with Richard Lehman, of the first edition of this book and the author of McMillan on Options (Wiley) and Options as a Strategic Investment.

Okładka tylna:
Praise for Options FOR Volatile Markets, Second Edition
"Once again, McMillan and Lehman have created new and insightful updates into the world of derivatives trading. Every time you think you′ve mastered the game, these two industry titans prove you wrong. It′s uncanny. In fact, let me put it this way: If you think you know options markets, think again."
—Richard Bensignor, President and Chief Strategist at Bensignor Strategies, Inc.; Editor of New Thinking in Technical Analysis
"Highly recommended for serious investors aiming to protect their portfolios from the next ′black swan′ event. It′s not a question of ′if′ but ′when.′ Be prepared with the tactics in this book."
—Donato A. Montanaro, Jr., Chairman and CEO, TradeKing
"Options for Volatile Markets provides the reader with time–tested option strategies for capital appreciation, income generation, and limiting losses. As discovered during the financial hurricane of 2008, asset diversification is not enough. Properly implemented, option strategies can be the difference between financial success and failure during volatile times."
—Kenneth G. Winans, CMT, MBA, President and Founder, Winans International; award–winning author and Forbes.com columnist
"The ′new normal′ post–2008 world involves more than just lower returns, it comes with an overhang of serious risk to boot. This book provides clear strategies to both boost returns and protect against ′fat–tail′ risks that can destroy capital."
—Stephen Savage, Managing Partner, Litman/Gregory Asset Management
"Successful investment management over time is not driven by how much one makes, but rather by how much one consistently does not lose. The best investors and traders of which I know focus first on risk management and secondly on profit maximization. After witnessing the financial market volatility of the last decade, absolute returns and consistency of those returns should be a key objective of institutional as well as retail investors going forward. Lehman and McMillan provide a roadmap of creative, intelligent, and purposeful options strategies for achieving exactly this."
—Brian Pretti, CFA, CFP, Chief Investment Officer, Mechanics Bank