Stefan Deutschmann - Options for everybody

Options for everybody

Simple. Profitable. Trading.

1st edition

Stefan Deutschmann

I M P R I N T Options for everybody

Simple. Profitable. Trading.

1st edition

© 2018-2019 Stefan Deutschmann.

All rights reserved.

Author: Stefan Deutschmann

E-Mail: stefan1deutschmann@gmail.com

Cover: Samantha Stückroth

E-Mail: s.stueckroth@live.de

Publishing Company: self-published

Printed version (German only): epubli – a part of neopubli GmbH, Berlin

Inhaltsverzeichnis

I M P R I N T I M P R I N T Options for everybody Simple. Profitable. Trading. 1st edition © 2018-2019 Stefan Deutschmann. All rights reserved. Author: Stefan Deutschmann E-Mail: stefan1deutschmann@gmail.com Cover: Samantha Stückroth E-Mail: s.stueckroth@live.de Publishing Company: self-published Printed version (German only): epubli – a part of neopubli GmbH, Berlin

Figures

List of abbreviations

Foreword

1. General information

1.1 A game of probabilities?!

1.2 What is an option?

1.3 Stocks vs. Options

2. Basics

2.1 Main Features of Options Contracts

2.2 Basics: Call vs. Put

2.3 Buying or selling Options?

2.4 Profit Loss (P L) Diagrams

2.5 Repitition: Understanding Call Options

2.6 Repitition: Understanding Put Options

2.7 Option Moneyness (ITM, OTM, ATM)

2.8 Extrinsic & Intrinsic Value

2.9 “The greeks”

2.10 Volatility

2.11 Probability of Profit (POP)

2.12 Standard deviation

2.13 Trading the probabilities

2.14 Bid-Ask-Spread

2.15 Volume & Open Interest

2.16 Nominal value & Buying Power

2.17 Expiration of options & Asignment

2.19 Earnings

2.21 Using correlation for diversification

2.22 Market awareness

2.23 Number of occurences

2.24 The "real" probability

2.25 “Black Swan” Events

3. Strategies

3.1 How do I choose the right strategy?

3.2 Naked Put Options

3.3 Naked Call-Options

3.4 Covered Call

3.5 Vertical Debit Spread

3.6 Long Call Vertical Spread

3.7 Long Put Vertical Spread

3.8 Vertical Credit Spread

3.9 Short Put Vertical Spread

3.10 Short Call Vertical Spread

3.11 Strangle

3.12 Iron Condor

3.13 Straddle

3.14 Iron Fly

4. The 1x1 of the trade

4.1 Opening a trade

4.2 Closing a trade

4.3 Option strategies for beginners

4.4 Which strategies do we not adjust and why?

4.5 Adjustment of loss positions

4.6 Why roll options?

4.7 Holistic consideration of adjusting

4.8 Adjusting a „naked“ Option

4.9 Adjusting Strangles and Straddles

4.10 Why you should not use Stop Loss Orders

5. Trading successfully

5.1 Repetition of the most important basics

5.2 Anxiety and control

5.3 Managing winners

5.4 What is to be considered before entering the trade?

5.5 What is the difference between strategies with and without predefined loss limits?

5.6 How does VIX help you choose the right strategy?

5.7 Procedure and execution of a trade (Option selling)

5.8 Procedure and execution of a trade (earnings trade)

5.9 Procedure and execution of a trade (trading volatility)

5.10 Procedure and execution of a trade („close your eyes and sell puts“)

5.12 Procedure and execution of a trade (Ratio-Spreads)

5.13 Daily routine

6. Cheat-Sheets

Bullish Strategies

6.1 Covered Call

6.2 Long Call Diagonal Spread

6.3 Naked Short Put

6.4 Long Call Vertical Spread

6.5 Short Put Vertical Spread

Baerish Strategies

6.6 Long Put Vertical Spread

6.7 Long Put Diagonal Spread

6.8 Naked Short Call

6.9 Short Call Vertical Spread

Neutral Strategies

6.10 Broken Wing Butterfly

6.11 Butterfly

6.12 Calender Spread

6.13 Iron Condor

6.14 Iron Fly

6.15 Jade Lizard

6.16 Straddle

6.17 Strangle

Bibliography

Figure 1: CatchMark Timber Trust Inc. (CTT), Preis in USD, vom 15.02.2019 16

Figure 2: Option chain of the SPY 28

Figure 3: Rights and obligations for buyers and sellers 41

Figure 4: P/L-Diagram (Long-Call) 47

Figure 5: P/L-Diagram (Short-Call) 49

Figure 6: P/L-Diagram (Iron Condor) 50

Figure 7: "Moneyness" #1 63

Figure 8: „Moneyness“ #2 64

Figure 9: Intrinsic & extrinsic value or „Moneyness“ 71

Figure 10: Gamma-Change during days into trade 81

Figure 11: : Gamma-Influence on your P/L during the trade 82

Figure 12: Gamma within different strategies 82

Figure 13: Gamma at different strikes 83

Figure 14: Thetadecay over time, combined with premium 88

Figure 15: Verhältnis Ratio of premium / theta decay 88

Figure 16: Vega in different strategies 91

Figure 17: Vega at different strikes and expirations 92

Figure 18: Different IV-Ranks and their interpretations 97

Figure 19: Calculating the IVR 99

Figure 20: Expected Move at IV=15 102

Figure 21: Expected Move at IV=30 102

Figure 22: VIX "Contango" 105

Figure 23: VIX "Backwardation" 106

Figure 24: Graphical representation of the 1st and 2nd standard deviation in the SPY with an IVR of 11 117

Figure 25: Probability of Profit Strangles; 1. vs. 2. standard deviation 119

Figure 26: Strangles; 1. vs. 2. standard deviation (simulation with 1 million USD account size, of which 25% was actively used for trades). 75% were held in cash. 119

Figure 27: Strangles, 1st vs. 2nd standard deviation, graphical 120

Figure 28: P/L-Diagram Short-Put 123

Figure 29: P/L-Diagram Short-Call 124

Figure 30: P/L-Diagram Strangle 125

Figure 31: P/L-Diagram at 10 DTE 127

Figure 32: P/L-Diagram at 45 DTE 128

Figure 33: P/L-Diagram Long-Put 130

Figure 34: P/L-Diagram Long Call 131

Figure 35: Example for narrow spreads, good volume and good open interest in the SPY 139

Figure 36: Example for the required Buying-Power of a Strangles in Canopy (CGC) 150

Figure 37: A healthy "middle course" through diversification 166

Figure 38: Historical vs. implied volatility 182

Figure 39: Sorting of shares according to IVR 184

Figure 40: P/L-Diagram Long-Put 189

Figure 41: P/L-Diagram Naked-Short-Put 192

Figure 42: P/L-Diagram Long-Call 196

Figure 43: P/L-Diagram Naked Short Call 199

Figure 44: P/L-Diagram Vertical Credit Spread (Put) 216

Figure 45: P/L-Diagram Vertical Credit Spread (Call) 218

Figure 46: P/L-Diagram Strangle 225

Figure 47: P/L-Diagram Iron Condor (same width of the Spreads) 228

Figure 48: P/L-Diagram Straddle 232

Figure 49: P/L-Diagram Iron Fly 236

Figure 50: P/L-Diagram Iron Fly (Example) 238

Figure 51: Take-Profit (before rolling) 272

Figure 52: Take-Profit (after rolling) 273

Figure 53: Rolling process based on a chart 285

Figure 54: Rolling process with P/L-Diagram 285

Figure 55: 1-year chart of ROKU 297

Figure 56: Theta decay over time 300

Figure 57: Strength of the theta decay based on different initial values 301

Figure 58: Comparison of trades with 21 / 45 DTE (in SPY) 302

Figure 59: Long-term comparison of different management approaches 303

Figure 60: Management by strategy 305

Figure 61: Strangles 305

Figure 62: Straddles 306

Figure 63: Naked-Put 306

Figure 64: Naked-Call 306

Figure 65: SPY is a fairly priced underlying 310

Figure 66: P/L-Diagram Strangle (green), Iron Condor with 1 USD (yellow) and 5 USD (turquoise) wide strikes 313

Figure 67: The Greeks: Strangle vs. Iron Condor 313