Options: Essential Concepts and Trading Strategies
Author: The Options Institute (CBOE)
Hardcover: 441 pages
Publisher: McGraw-Hill; 3 edition (June 21, 1999)
Essential Concepts and Trading Strategies is an excellent starting point for new option investors. It is written in an easy-to-understand way by several of today’s leading practitioners and edited by The Options Institute, the educational arm of the Chicago Board Options Exchange (CBOE) and the largest options exchange in the world. Needless to say, it contains a lot of breadth as well as depth on the subject of options. It starts with the history of options and takes you through basic option pricing theory, volatility, the role of market makers, to new innovations such as LEAPS. You’ll even find institutional case studies including how to use options as an indicator of price moves for the underlying stock. If you are new to options, this is a great starting point. If you are experienced with options, it is a must-have reference guide.
Getting Started in Options
Author: Michael Thomsett
Paperback: 304 pagesWiley; 7 edition (August 31, 2007)
Publisher: Wiley, John & Sons, Incorporated
This is a great book for beginners. In non-technical, easy-to-follow terms, Getting Started in Options thoroughly demystifies the options markets, distinguishes the imagined risks from the real ones, and arms investors with the facts they'll need to make informed decisions. Every technique is amply illustrated with case studies. Also available on CD.
McMillan on Options
Author: Lawrence G. McMillan
Hardcover: 648 pages
Publisher: Wiley; 2nd edition (September 2004)
Author: Lawrence G. McMillanLegendary trader Larry McMillan does it-again-offering his personal options strategies for consistently enhancing trading profits Larry McMillan's name is virtually synonymous with options. This "Trader's Hall of Fame" recipient first shared his personal options strategies and techniques in the original McMillan on Options. Now, in a revised and Second Edition, this indispensable guide to the world of options addresses a myriad of new techniques and methods needed for profiting consistently in today's fast-paced investment arena. This thoroughly new Second Edition features updates in almost every chapter as well as enhanced coverage of many new and increasingly popular products. It also offers McMillan's personal philosophy on options, and reveals many of his previously unpublished personal insights. Readers will soon discover why Yale Hirsch of the Stock Trader's Almanac says, "McMillan is an options guru par excellence."
Options as a Strategic Investment
Hardcover: 1030 pages
Publisher: New York Institute of Finance; 3rd edition (1993)
With over 250,000 copies sold, this book is regarded by many as the Bible of option strategies and is often given to new floor traders and market makers as the “survival guide” for their business. Written especially for investors who have some familiarity with the option market, this comprehensive reference also shows you the concepts and applications of various option strategies – how they work, in which situations, and why. It analyzes techniques for using index options and futures to protect your portfolio and improve your return as well as the implications of the tax laws for option writers, including allowable long-term gains and losses. This is a must-have for all serious option traders and investors.
Option Volatility and Pricing
Author: Sheldon Natenberg
Hardcover: 470 pages
Publisher: McGraw-Hill; 1 edition (August 1, 1994)
This is perhaps the single best options book ever written and is considered by many professionals as the Bible for option traders. If I had to pick one book that is a must-read for option investors, this is it. However, if you are new to options, this is not be your best starting point as it does not cover basic option concepts.
It starts with basic probability concepts necessary for understanding the role of volatility and its importance for option traders. The information is then further developed to enhance your understanding of option pricing theory. Armed with this knowledge, you’ll have a good sense if a particular option is priced fairly just by looking at the quote board. Natenberg shows how this can be accomplished by looking at vertical spreads, butterfly spreads, box spreads, straddles, and many others. These are the techniques used by professional floor traders to search for theoretical edges without the use of a pricing model. The book covers numerous strategies for trading and exploiting discrepancies in the market.
Options: Perception and Deception
Author: Charles M. Cottle
Hardcover: 381 pages
Publisher: Irwin Professional Pub; Har/Dsk edition (June 1996)
This is another one of the few great books ever written on the subject. It is, however, out of print and difficult to find. If you can get your hands on a copy, it will be expensive (I’ve recently seen prices ranging from $150 to $250) but well worth the money. You can generally find them used at Amazon.com, Barnes and Noble.com, or Powell Books.com. Also, I’ve seen it pop up on eBay from time to time.
Charles Cottle is a former floor trader and demonstrates incredible knowledge and covers everything from elementary concepts to the most advanced techniques used by professional option traders. He also shows how to dissect risk from an account without using theoretical models. Do you know where all the risks lie in your account? This book shows just how deceptive option risk can be. The book will change your perceptions and is a must read for any serious option trader.
New Insights on Covered Call Writing:
The Powerful Technique That Enhances Return and Lowers Risk in Stock Investing
Authors: Richard Lehman and Lawrence G. McMillan
Hardcover: 240 pages
Publisher: Bloomberg Press; 1 edition (May 2003)
Covered call writing is often the first strategy used by first-time option investors. The strategy entails the purchase of 100 shares of stock and the sale of a call, which gives the investor the potential obligation to sell those shares. Because most investors are comfortable with purchasing shares, it is not too difficult to take the added step and sell or “write” the call.
The sale of the call brings in immediate cash to the writer and provides a small hedge to guard against the downside risk of the stock. But despite the simplicity, there are many questions that covered call writers encounter. Which strike should I write? Which month? How do I calculate returns? How do I get out of the contract or roll to a different month?
This book covers the strategy in detail and answers all the questions you could ever hope to ask. It is a great read for those new to options as well as sophisticated investors seeking income from their portfolios. Even if you’re familiar with the covered call writing, this book sheds light on many new insights you may not have considered.
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
Author: Burton G. Malkiel
Hardcover: 480 pages
Publisher: W. W. Norton; 9 edition (January 22, 2007)
Burton Malkiel is the Chemical Bank Chairman's Professor of Economics at Princeton University and has written this classic book for all types of investors, which is in its ninth edition. It is the best-selling, authoritative, and gimmick-free guide to investing.
It has been updated with a new chapter that draws on behavioral finance, the field that studies the psychology of investment decisions. Burton Malkiel evaluates the full range of investment opportunities, from stocks, bonds, and money markets to real estate investment trusts and insurance, home ownership, and tangible assets such as gold and collectibles. This edition includes new strategies for rearranging your portfolio for retirement, along with the book's classic life-cycle guide to investing, which matches the needs of investors in any age bracket. A Random Walk Down Wall Street long ago established itself as a must-read, the first book to purchase before starting a portfolio. So whether you want to brief yourself on the ways of the market before talking to a broker or follow Malkiel's easy steps to managing your own portfolio, this book remains the best investing guide money can buy.
A Mathematician Plays the Stock Market
Author: John Allen Paulos
Paperback: 216 pages
Publisher: Perseus Publishing
It’s always interesting and enlightening to get a different perspective on the mechanics of the stock market. Most books seem to be written by stock brokers, economists, and other Wall Street professionals who often share similar views on the fundamental forces that drive the daily gyrations of the stock market. It’s not often that we hear the voice of a mathematician.
But why shouldn’t we? The stock market is filled with mathematics – everything from probabilities and pricing models to fair values and fractals. More importantly, its key ingredient is randomness, an elusive concept that is largely responsible for creating the stock price patterns we see every day.
John Allen Paulos is a Professor of Mathematics at Temple University, a columnist on ABCNews.com, a member of the editorial board of the Philadelphia Daily News, and a frequent commentator on the intersection of mathematics, psychology, and everyday life. His vast knowledge of mathematics combined with exemplary writing skills will educated and entertain even the most seasoned investor.
Fooled by Randomness
Author: Nassim Nicholas Taleb
Paperback: 368 pages
Publisher: Random House Trade Paperbacks; 2 Updated edition (August 23, 2005)
While successful investing requires sound judgments, patience, and skill there is always that one little hidden quality that’s easy to overlook – luck. Sometimes the “best” investors have succeeded by nothing more than being at the right place at the right time. How is that possible? Taleb describes through various stories how easy it is to be fooled by randomness. Randomness, against most peoples’ intuition, can display beautiful patterns. A computer simulation of coin flips can produce chart patterns of double tops, Fibonacci retracements, consolidation patterns and many others. Despite this, many individuals tout their performance as a product of skill and esoteric feel for turning points in the market. But as Taleb warns, no one can replicate what is obtained through chance. A million monkeys banging on keyboards may eventually produce one that writes an exact copy of the Iliad, but would you sign him to write the sequel? Are we capable of distinguishing the fortunate charlatan from the genuine visionary? While you may think you can, Fooled by Randomness shows how easy it is to overlook the hidden role of chance. After reading it, at least you can be better prepared.