The Bible of Options Strategies - pearsoncmg.com

1 The Bibleof OptionsStrategiesThis page intentionally left blank The Bibleof OptionsStrategiesThe Definitive Guide for Practical Trading StrategiesGuy CohenLibrary of Congress Number: 2004116072 Vice President and Editor-in-Chief: Tim MooreExecutive Editor: Jim BoydEditorial Assistant: Kate E. StephensonDevelopment Editor: Russ HallMarketing Manager: Martin LitkowskiInternational Marketing Manager: Tim GalliganCover Designer: Sandra SchroederManaging Editor: Gina KanouseSenior Project Editor: Sarah KearnsCopy Editor: Ben LawsonIndexer: Larry SweazyCompositor: Interactive Composition CorporationManufacturing Buyer: Dan Uhrig 2005 by Pearson Education, as FT PressUpper Saddle River, New Jersey 07458FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special more information, please contact Corporate and Government Sales, For sales outside the , please contact International Sales at and product names mentioned herein are the trademarks or registered trademarks of theirrespective rights reserved.

2 No part of this book may be reproduced, in any form or by any means, withoutpermission in writing from the in the United States of AmericaISBN: 0-13-171066-4 Pearson Education Education Australia PTY, Education Singapore, Pte. Education North Asia, Education Canada, Educati n de Mexico, de Education JapanPearson Education Malaysia, Pte. Printing: September 2013To Dominic and Lulu, who keep reminding me of their omission from theAcknowledgments of my first book!This page intentionally left blank Table of ContentsPreface .. xxviiAcknowledgments .. xxxvAbout the Author .. xxxviThe Four Basic Options Strategies .. 1 Income Strategies .. 21 Vertical Spreads .. 89 Volatility Strategies .. 119 Sideways Strategies .. 175 Leveraged Strategies .. 219 Synthetic Strategies .. 239 Taxation for Stock and Options Traders .. 293 Appendix A Strategy Table .. 303 Appendix B Glossary.

3 317 Index .. 33187654321 This page intentionally left blank Find Your Strategy By ChapterThe Four Basic Options Strategies .. Long Call .. Short (Naked) Call .. Long Put .. Short (Naked) Put .. 16 Income Strategies .. Covered Call .. Short (Naked) Put Refer to chapter 1 ( ) .. Bull Put Spread .. Bear Call Spread .. Long Iron Butterfly .. Long Iron Condor .. Covered Short Straddle .. Covered Short Strangle .. Calendar Call .. Diagonal Call .. Calendar Put .. Diagonal Put .. Covered Put (Also Known as a Married Put) .. 84 Vertical Spreads .. Bull Call Spread .. Bear Put Spread .. Bull Put Spread Refer to chapter 2 ( ) .. Bear Call Spread Refer to chapter 2 ( ) .. Bull Call Ladder .. 99321xFind Your Strategy By Bull Put Ladder .. Bear Call Ladder .. Bear Put Ladder .. 114 Volatility Strategies .. Straddle.

4 Strangle .. Strip .. Strap .. Guts .. Short Call Butterfly .. Short Put Butterfly .. Short Call Condor .. Short Put Condor .. Short Iron Butterfly .. Short Iron Condor .. 170 Sideways Strategies .. Short Straddle .. Short Strangle .. Short Guts .. Long Call Butterfly .. Long Put Butterfly .. Long Call Condor .. Long Put Condor .. Modified Call Butterfly .. Modified Put Butterfly .. Long Iron Butterfly Refer to chapter 2 ( ) .. Long Iron Condor Refer to chapter 2 ( ) .. 217 Leveraged Strategies .. Call Ratio Backspread .. Put Ratio Backspread .. Ratio Call Spread .. Ratio Put Spread .. 233654 Synthetic Strategies .. Collar .. Synthetic Call .. Synthetic Put .. Long Call Synthetic Straddle .. Long Put Synthetic Straddle .. Short Call Synthetic Straddle .. Short Put Synthetic Straddle.

5 Long Synthetic Future .. Short Synthetic Future .. Long Combo .. Short Combo .. Long Box .. 286 Taxation for Stock and Options Traders .. Tax on Stocks .. Tax on Options .. 296 Appendix A Strategy Table .. 303 Appendix B Glossary .. 317 Index .. 33187 Find Your Strategy By chapter xiThis page intentionally left blank Find Your Strategy By ProficiencyThe following Strategies are appropriate for novice traders: NoviceChapterPageLong Call15 Long Put112 Covered Call223 Synthetic Call7246 Synthetic Put7250 The following Strategies are appropriate for intermediate traders: IntermediateChapterPageBear Call Spread399 Bull Put Spread228 Bear Call Spread232 Bull Put Spread399 Calendar Call257 Collar7240 Diagonal Call263 Long Call Butterfly5188 Long Iron Butterfly2 and 536, 217 Long Iron Condor2 and 541, 217 Long Put Butterfly5193 Short (Naked) Put1 and 216, 28 Short Call Butterfly4148 Short Put Butterfly4152 Straddle4121 Strangle4127xivFind Your Strategy By ProficiencyThe following Strategies are appropriate for advanced traders.

6 AdvancedChapterPageBear Call Ladder3109 Bear Put Ladder3114 Bull Call Ladder399 Bull Put Ladder3104 Calendar Put269 Call Ratio Backspread6219 Covered Put284 Covered Short Straddle246 Covered Short Strangle251 Diagonal Put276 Long Call Condor5198 Long Put Condor5203 Short (Naked) Call19 Put Ratio Backspread6224 Short Call Condor4157 Short Iron Butterfly4166 Short Iron Condor4170 Short Put Condor4161 Short Straddle5176 Short Strangle5180 The following Strategies are appropriate for expert traders: ExpertChapterPageGuts4143 Long Box7286 Long Call Synthetic Straddle7254 Long Combo7278 Long Put Synthetic Straddle7258 Long Synthetic Future7271 Modified Call Butterfly5208 Modified Put Butterfly5212 Ratio Call Spread6229 Ratio Put Spread6233 Short Call Synthetic Straddle7263 Short Combo7282 Short Guts5184 Short Put Synthetic Straddle7267 Short Synthetic Future7275 Strap4137 Strip4132 Find Your Strategy By Proficiency xvFind Your Strategy By DirectionThe following Strategies are bullish.

7 BullishChapterPageBear Call Ladder3109 Bull Call Spread390 Bull Put Spread2 and 328, 99 Calendar Call257 Calendar Put269 Call Ratio Backspread6219 Collar7240 Covered Call223 Covered Short Straddle246 Covered Short Strangle251 Diagonal Call263 Diagonal Put276 Long Call15 Long Combo7278 Long Synthetic Future7271 Modified Call Butterfly5208 Modified Put Butterfly5212 Short (Naked) Put1 and 216, 28 Ratio Put Spread6233 Strap4137 Synthetic Call7246 The following Strategies are bearish: BearishChapterPageBear Call Spread2 and 332, 99 Bear Put Spread394 Bull Put Ladder3104 Covered Put284 Long Put112 Short (Naked) Call19 Put Ratio Backspread6224 Ratio Call Spread6229 Short Combo7282 Short Synthetic Future7275 Strip4132 Synthetic Put7250 The following Strategies are direction neutral: Direction NeutralChapterPageBear Put Ladder3114 Bull Call Ladder399 Guts4143 Long Box7286 Long Call Butterfly5188 Long Call Condor5198 Long Call Synthetic Straddle7254 Long Iron Butterfly2 and 536, 217 Long Iron Condor2 and 541, 217 Long Put Butterfly5193 Long Put Condor5203 Long Put Synthetic Straddle7258 Short Call Butterfly4148 Short Call Condor4157 Short Call Synthetic Straddle7263 Short Guts5184 Short Iron Butterfly4166 Short Iron Condor4170 Short Put Butterfly4152 Short Put Condor4161 Short Put Synthetic Straddle7267 Short Straddle5176 Short Strangle5180 Straddle4121 Strangle4127 Find Your Strategy By Direction xviiFind Your Strategy By VolatilityThe following Strategies benefit from high volatility once you are in thetrade.

8 High VolatilityChapterPageBear Call Ladder3109 Bull Put Ladder3104 Calendar Call257 Call Ratio Backspread6219 Collar7240 Diagonal Call263 Guts4143 Long Box7286 Long Call Synthetic Straddle7254 Long Put Synthetic Straddle7258 Put Ratio Backspread6224 Short Call Butterfly4148 Short Call Condor4157 Short Iron Butterfly2 and 4166 Short Iron Condor2 and 4170 Short Put Butterfly4152 Short Put Condor4161 Straddle4121 Strangle4127 Strap4137 Strip4132 The following Strategies benefit from low volatility once you are in thetrade:Low VolatilityChapterPageBear Call Ladder3109 Bull Call Ladder399 Long Call Butterfly5188 Long Call Condor5198 Long Iron Butterfly2 and 536, 217 Long Iron Condor2 and 541, 217 Long Put Butterfly5193 Long Put Condor5203 Modified Call Butterfly5208 Modified Put Butterfly5212 Ratio Call Spread6229 Ratio Put Spread6233 Short Call Synthetic Straddle7263 Short Guts5184 Short Put Synthetic Straddle7267 Short Straddle5176 Short Strangle5180 Find Your Strategy By Volatility xixFind Your Strategy By Risk / RewardThe following Strategies have a capped risk profile .

9 Capped RiskChapterPageBear Call Spread2 and 332, 99 Bear Call Ladder3109 Bear Put Spread394 Bull Call Spread390 Bull Put Spread2 and 328, 99 Bull Put Ladder3104 Calendar Call257 Calendar Put269 Call Ratio Backspread6219 Collar7240 Covered Call223 Diagonal Call263 Diagonal Put276 Guts4143 Long Box7286 Long Call15 Long Call Butterfly5188 Long Call Condor5198 Long Call Synthetic Straddle7254 Long Iron Butterfly2 and 536, 217 Long Iron Condor2 and 541, 217 Long Put112 Long Put Butterfly5193 Long Put Condor5203 Long Put Synthetic Straddle7258 Modified Call Butterfly5208 Modified Put Butterfly5212 Short (Naked) Put1 and 216, 28 Put Ratio Backspread6224 Short Call Butterfly4148 Short Call Condor4157 Short Iron Butterfly4166 Short Iron Condor4170 Short Put Butterfly4152 Short Put Condor4161 Straddle4121 Strangle4127 Strap4137 Strip4132 Synthetic Call7246 Synthetic Put7250 The following Strategies have an uncapped risk profile : Uncapped RiskChapterPageBear Put Ladder3114 Bull Call Ladder399 Covered Put284 Covered Short Straddle246 Covered Short Strangle251 Long Combo7278 Long Synthetic Future7271 Short (Naked) Call19 Ratio Call Spread6229 Ratio Put Spread6233 Short Call Synthetic Straddle7263 Short Combo7282 Short Guts5184 Short Put Synthetic Straddle7267 Short Straddle5176 Short Strangle5180 Short Synthetic Future7275 Find Your Strategy By Risk/Reward xxixxiiFind Your Strategy By Risk/RewardThe following Strategies offer only a capped reward profile .

10 Capped RewardChapterPageBear Call Spread2 and 332, 99 Bear Put Spread394 Bear Put Ladder3114 Bull Call Spread390 Bull Call Ladder399 Bull Put Spread2 and 328, 99 Calendar Call257 Calendar Put269 Collar7240 Covered Call223 Covered Put284 Covered Short Straddle246 Covered Short Strangle251 Diagonal Call263 Diagonal Put276 Long Box7286 Long Call Butterfly5188 Long Call Condor5198 Long Iron Butterfly2 and 536, 217 Long Iron Condor2 and 541, 217 Long Put Butterfly5193 Long Put Condor5203 Modified Call Butterfly5208 Modified Put Butterfly5212 Short (Naked) Call19 Short (Naked) Put1 and 216, 28 Ratio Call Spread6229 Ratio Put Spread6233 Short Call Butterfly4148 Short Call Condor4157 Short Call Synthetic Straddle7263 Short Guts5184 Short Iron Butterfly4166 Short Iron Condor4170 Short Put Butterfly4152 Short Put Condor4161 Short Put Synthetic Straddle7267 Short Straddle5176 Short Strangle5180 The following Strategies offer an uncapped reward potential: Uncapped RewardChapterPageBear Call Ladder3109 Bull Put Ladder3114 Call Ratio Backspread6219 Guts4143 Long Call15 Long Call Synthetic Straddle7254 Long Combo7278 Long Put112 Long Put Synthetic Straddle7258 Long Synthetic Future7271 Put Ratio Backspread6224 Short Combo7282 Short Synthetic Future7275 Straddle4121 Strangle4127 Strap4137 Strip4132 Synthetic Call7246 Synthetic Put7250 Find Your Strategy By Risk/Reward xxiiiFind Your Strategy By TypeThe following Strategies enable to you capture a regular income.