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Option Spread Strategies: Trading Up, Down, and Sideways Markets (Bloomberg Professional)

From Bloomberg Press

Author : Anthony J. Saliba
Binding : Paperback
DeweyDecimalNumber : 332.6453
EAN : 9781576602607
ISBN : 1576602605
Label : Bloomberg Press
Manufacturer : Bloomberg Press
NumberOfPages : 288
ProductTypeName : ABIS_BOOK
PublicationDate : 2009-01-01
Publisher : Bloomberg Press
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Customer Reviews

Rating:
Summary: Good for newer option traders
Comment: I saw that each strategy had about 30 pages of information, so I thought that the depth of discussion would be quite good. Unfortunately, the first 10 pages of each chapter is simply which options make up the strategy. Investopedia does the same job in 1 page. The next 10 pages shows pictures of the greeks, which I did not find very useful. Probably the reason why is that there is not a single options chain in the whole book. The values he picks for his greeks would seem to come out of thin air to the newer trader. Also, the pictures often times do not use the same scaling/pricing as the examples that they are supposed to be describing. Qualitatively, they are good, but it could have been much better if Saliba matched the graphs more tightly to the text. The only parts I liked was the last 10 pages when he talks about adjustments. I have had a tough time finding books about adjustments, and this one gives a good introduction to adjustments. Sometimes though, his advice is not really advice: "If your trade moves against you, then take appropriate actions to protect your capital." What can I do with that? I thought the exercises at the end were trivial. They test you to see if you understood what you read like "What does a short put vertical made of?" I would have rather seen questions about what to do in different situations, but these only make up 10 or 20% of the questions.

Overall, I would describe this book as teaching the newer trader about how options work, but not how to trade them successfully. Saliba avoids complicated math and keeps it simple. As other reviewers have noted, he is perhaps a better teacher than others. However, this is really only an overview of option strategies and does not give enough real-world scenarios to equip the reader to make money by trading options.
Rating:
Summary: Saliba's Well Baked 'Option Spread Strategies' Takes the Cake
Comment: If you are looking for a clearly written book on Options to understand and trade some good option strategies look no further. Anthony Saliba and his team have written this cook book style options instruction manual to educate the reader (with beginner/intermediate level options skills), so the reader can assess if the strategies are a good match to his/her risk appetite and trading philosophy and then trade them for potential profits.

As the authors indicate in the `Important Disclosures', in order to trade the strategies discussed in this book the reader must have his trading account approved by a broker/dealer for that specific trading level. With this in mind, I recommend you look at three of the eight strategies discussed by the authors: Strategy 1 (Covered Write, or Covered Call or Buy Write), Strategy 2 (Bull Put Spreads with cash covered puts), Strategy 4 (Straddles and Strangles), since the level of approval required should be straight forward (for example, a level II approval at Fidelity).

Any book however well written can stand some fine tuning to maximize the reader's benefits. Given the excellent exposition in the rest of the book, I would recommend that the authors could have taken greater care with the opening chapter on Covered Calls. The Profit/Loss diagram shows two profiles (Long Stock and Short Call). It would be a perfect accompaniment to the text if the authors showed the profile for the position (Long Stock + Short Call). This would better illustrate the `breakeven and Loss' on the downside, and the `profit and the opportunity loss' on the upside. The accompanying text misstates the maximum profit, which does not fit the ATM call in the example. In addition, the figure (Example 1, p 20) for original position and closing trade is introduced without any explanation in the accompanying text. Finally, to close my nit-picking mode, the authors could have included the P&L diagrams for a simple Call and Strike along with the definitions so that the book is amenable even to the rank beginner.

The entire book is strewn with simple and concise advice (`nuggets of wisdom'). Example1: `Covered writes are not "fire and forget" trades. They require attention ...' Example 2: `call and put bull spreads and call and put bear spreads are synthetically equivalent... and may be used interchangeably to accomplish the same task. Deciding which one is best to use depends on the pricing of at the point of execution. Example 3: Traders looking for a "sure thing" can become addicted to short straddles and strangles. They give the appearance of making money in every direction and have unlimited profit potential.

The inclusion of Greek profiles with each of the strategy discussions adds immensely to the understanding of the reader and provide the tools to assess the strategies for themselves. The authors neglect to say that the horizontal axis in the Greek chart represents `Stock Price - Strike Price'. All examples appear to be academic although explained very well. Inclusion of real ticker symbols would add greatly to the reader's feel and understanding (even if the author's may have to add one more caveat to the `Important Disclosures' section).

In conclusion, this well written book belongs as a handy go-to cook book on your options reference shelf.
Options Made Easy: Your Guide to Profitable Trading (2nd Edition)


Rating:
Summary: Book Review from the Aleph Blog
Comment: I'm usually pretty open to reviewing books. Sometimes I get books that I can't do justice to in reviewing. The following two books may be examples of that:

Option Spread Strategies: Trading Up, Down, and Sideways Markets

Option Strategies for Directionless Markets: Trading with Butterflies, Iron Butterflies, and Condors

I'm not an options trader. Do I understand the math? Largely, yes. Do I understand how they can benefit investors? Also yes. I occasionally use options to enhance income, but for the most part, I avoid using them for personality reasons. I fear that I would make bad decisions while working at a higher level of leverage. I don't trust myself.

As for the books, they are clear and well-written, giving both the common view of options, and the view using the "greeks" a la Black-Scholes. The chapters explain, and then offer tests at the end to see how well you have understood. These could be textbooks in a business school.

The books explain how you can make money in any environment if your view of the world is correct. That's the catch, though. Few of us get it right within the length of time before an option expires. Be wary of the correctness of your opinions.

Now, my opinion is not of the highest value here. Better to consult Adam Warner or Bill Luby, who have far more practical experience on a retail level. My experience is largely institutional with respect to options.
Rating:
Summary: Good, but very demanding
Comment: It's a good idea before buying a book, especially a book on options trading, whether you're in the audience for which the book was written. If you're a beginner, don't start here. I would recommend another book by the same author, "The Options Workbook." If you can make it through that book, you'll be more than prepared to take on this one.

Learning options or anything else involves two very different types of skills: (1) knowing how to do what you're trying to learn; (2) knowing how to learn it. You can learn (1) by studying the subject itself, but not (2). And unfortunately, there are very few options-trading books on the market that will teach you. The reason is that most of their authors, while they may be great traders, don't know how to teach. In fact, when it comes to giving satisfactory explanations, many are scatter-brained. The great strength of Saliba's books is that he does know how to teach. The books are in workbook format. He gives you examples of the strategies he's discussing, gives a fairly detailed analysis of each, and then offers practice questions (with answers) after each strategy, as well as at the end of each chapter. There's also a bonus final exam at the end of the book. This is sound teaching technique; these books are almost ideal for self-study. If you're anything like me, you learn by doing, not by staring at a page in a book. Both of Saliba's books are very hands-on.

Why do I say that Saliba's books are "almost ideal" for self-study? Because Saliba doesn't always spell out each of the steps that a beginner would have to know in order to justify the conclusions he draws. One thing a beginner has to know is how to construct a profit/loss table for any strategy he or she is studying, however simple or complex. And from that table, he or she must be able to construct the graph. Once this is done, he or she will know what the profit/loss picture looks like at expiration. The student will then know, for each price of the underlying at expiration, the intrinsic value of the component (long call, short call, long put, short put, long stock, short stock), and the profit/loss value for each. Once this is known, the combined profit-loss figure can easily be calculated. By looking at the table, one will know where the breakeven points are, as well as the maximum gain and maximum loss one can expect when putting on that strategy. "The Options Workbook" gives both profit-loss tables and graphs. But it doesn't make explicit how the values in the table are calculated. (Saliba probably assumes that the reader already knows this. But a beginner doesn't know this, unless he or she is told.) To close this pedagogical gap, I would recommend the beginner read James Bittman's book, "Options for the Stock Investor," especially chapters 1 and 2. While this process of constructing tables and graphs may at times be tedious, and even seemingly redundant, DON'T TRY TO SIDESTEP IT. Unless you understand the configuration of any option strategy at expiration, you really don't know what you're doing. And when you go online and click on the button to put on your position, you still won't know what you're doing. I'm convinced that a great many people who lose their shirts in the market, do so not because they were wrong in their prediction of the direction of movement in the underlying, but because their assessment of their positions were either wrong or incomplete.

"Option Spread Strategies" does a fine job of integrating the option Greeks, and volatility, into the analysis I've just described. However, this means that you have a working understanding of the Greeks before you begin. Saliba's discussion of the Greeks in "The Options Workbook" is woefully inadequate. In "Option Spread Strategies," as I said, he skillfully weaves the Greeks into the fabric of the strategies he discusses. But again, he's making great demands on the reader's understanding of the Greeks. To get a working knowledge of the Greeks, I would recommend two books: (1) "Trading Option Greeks," by Dan Passarelli; (2) "Trading Options as a Professional," by James Bittman. (All the books I've mentioned are available at Amazon.) In Bittman's book, focus on chapter 4. In that chapter, pages 118 to 134 are crucial, because Bittman hammers away at the essential distinction between option delta and position delta, option gamma and position gamma, and so on, for each of the Greeks. Unhappily for the beginner, the discussion is extremely terse. But it contains everything you have to understand to work with the Greeks. After I had torn out what little hair I have left, I finally got it. So will you. And when you've got it, you will be more than well-prepared to delve into Saliba's book "Option Spread Strategies." But please keep in mind, there are no shortcuts to learning options. If you don't expend the time and effort to learn before you expose yourself to the market, you'll most certainly learn from the market itself, the school of hard knocks. And I would say that paying the price for these books is a whole lot less traumatic. If you can't explain EXACTLY what you're doing when you put on an options position, what you hope to gain, and what you stand to lose, you don't understand it. Unfortunately, there's someone else taking the other side of your trade, whose face you'll never see and name you'll never know. He too may not understand what he's doing. But is that a risk you can afford to take?
Rating:
Summary: Excellent Strategies for Any Market
Comment: This book is written some of the foremost experts in the options industry. Anyone looking to take advantage of any market, not just a bull or bear market, should read this book. The "how-to" approach of this book will enable even a novice to participate in what has become THE DERIVATIVE MARKET of choice.