ws, 286
Call butterﬂy spread, deﬁned, 472Call option(s), generally:
at-the-money (ATM), 168, 229deﬁned, 34–35, 37, 43, 471deltas, 179 
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560
INDEX
Call option(s) (Continued)
exercising, 70in-the-money (ITM), 172intrinsic value, 65, 68 long call mechanics, 90–91long synthetic straddles, 220–225mechanics of, 50–53price determinants, 45
Call ratio backspread:
breakeven, 247, 249, 260–261, 523case study, 248–249deﬁned, 472exit strategy, 255, 260–261market opportunity, 247, 249, 523mechanics of, 244–247overview of, 243–244, 512, 523risk graph, 247–248risk/proﬁt proﬁle, 247, 249, 260strategy road map, 259–261
Call time value, 72Canadian dollar, 29Cancel former order, 363Capacity utilization rates, aseconomic indicator, 392
Capital gains, 406Capital management, 3Capital requirements, 99Cardinal Health (CAH), 113Carret, Phillip, 475Cash accounts, 73–74Cash indexes, 38Cash trades, 73, 373CBOE Volatility Index (VIX), 352Central banks, 350Certiﬁcates of deposit (CDs), 18Charles Schwab, 333, 343Chartists, deﬁned, 421Charts:
high-low-close (HLC), 455–457 information resources, 497–498Japanese candlestick chart, 455,
457–458, 460–461
open-high-low-close (OHLC),
455–456, 459
patterns, 380
volatility and, 458–459volume, 458–459
Cheap options, 15, 182, 225, 227, 322Chicago Board of Trade (CBOT), 348,
377, 384, 497
Chicago Board Options Exchange
(CBOE), 30, 32–33, 47, 56–57, 62,64, 163, 351–354, 425, 496Chicago Mercantile Exchange(CME), 30, 348, 377Chicago Stock Exchange, 348Churning, 340Cigna (CI), 140–141Cisco (CSCO), 153–154, 197–198,
210–211, 367Citigroup (C), 17–18, 29Clearing ﬁrms, 357Class of options, 53Clews, Henry, 477Close, 50, 52, 59Closing price, 82CNBC, 183, 440–441, 454, 499CNN, 442Coca-Cola, 60Collar/collar spread:
breakeven, 296, 298, 308, 526case study, 296–298deﬁned, 250, 472exit strategies, 295, 308margin, 295–296market opportunity, 296, 298, 526mechanics of, 293–294overview of, 292–293, 296, 298, 512,
526
risk graph, 294, 298risk/proﬁt proﬁle, 296, 298, 308,
526
strategy road map, 307–308
Collateral, 269Combination order, 152Combination trades, 378COMEX, 348Commission, brokers’, 52, 54, 56, 74,
90, 245, 271, 310, 331–333, 335,342, 345–346, 354
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Index
561
Commodities, see Financialcommodities; Physicalcommodities
Commodity brokers, 356Commodity Exchange (CEC), 348Commodity Futures Trading
Commission (CFTC), 348
Commodity Research Bureau (CRB):
functions of, generally, 388Futures Price Index (CRB Futures),
31
Common stock, 19–21Computer software programs,
459–460
Condors, deﬁned, 181, 472. See also
Long condorConﬁdence index, 427Conscious investing, 22Conservative investments, 20, 22Construction spending, as economic
indicator, 390, 392
Consumer Price Index (CPI), 194,
388–389, 392, 401
Consumption expenditures, as
economic indicator, 391–392
Contracts, see FuturesFOREX market, 349size of, 62
Contrarian investing:
characteristics of, 424–425, 433indicators for, 427overview of, 444
Convertibility, 21Corporate accountability, 22Corporate fraud, 394–395Cost-push inﬂation, 395Covered call:
breakeven, 102–106, 122–123, 516case study, 104–106exit strategies, 103–104, 122margin, 104, 106market opportunity, 104, 106, 516mechanics of, 100–103overview of, 99–100, 128, 343–344,
471, 511, 516
risk graph, 101–102risk/proﬁt proﬁle, 104, 106, 122,
516
strategy road map, 122–123write, 100Covered put:
breakeven, 115–117, 119, 127, 516case study, 116–119exit strategies, 116, 127margin, 115, 117, 119market opportunity, 117, 119, 516mechanics of, 115–116overview of, 115, 128, 471, 511, 
514
risk graph, 118risk/proﬁt proﬁle, 115–117, 119,
126–127, 516
Cox-Rubinstein option pricing
model, 176
Credits, 49, 70, 95–97, 101, 104–105,111, 115, 123, 126–127, 233
Credit spreads, 15, 131, 163Credit terms, disclosure of, 345Crowd psychology, 424, 481Currency markets, 28–29. See also
speciﬁc currenciesCurrent assets/liabilities, 419Customer credit balance, 427Customer margin debt, 427Cybertrader, 340Cyclical stocks, 22
Data service provider, 439–440,
491–493
DAX, 31Day order, 362Day trading, 173, 405Dealer, functions of, 151Debits, 49, 70, 101, 123, 233Debit spreads, 131–137, 163Debit trades, 244Debt instruments, 27–28Deep-discount brokers, 332Defense industry sector, 24Delayed quotes, 163
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562
INDEX
Delta, see Delta neutral trading
Discipline, importance of, 40–41,
characteristics of, 68, 166–169,171–172, 176–177, 186, 454
value, 504variable, 312–313
Delta-based adjustments, 316Delta neutral trading:
advanced strategies, see Advanced
delta neutral strategies
combining stocks with options,
190–193
long straddles, 189, 193–202,
225–227, 519
468–469, 481
Discount brokers, 331, 342–343Dividends, 18, 20–21, 30, 45, 47, 120,
126, 428Dot-coms, 1, 393Dow, Charles, 21, 23Dow Jones Diamonds (DIA), 32Dow Jones Industrial Average
(DJIA), 21, 23, 30, 76, 183, 353,428, 442
Dow Jones Railroad Average, 33Dow Jones Transportation Average,
long strangles, 207–211, 227–228,
33, 354
520
long synthetic straddles, 215–225,
228–232, 521
mechanics of, 187–190optimal trades, 165overview of, 11–12, 76–77,
165–166, 231–232
position adjustments, 174, 468short straddles, 202–207, 519short strangles, 211–215, 520time frame, 172–173volatility, 169–174
Demand-pull inﬂation, 395Derivatives, international, 29Diagonal spread:bearish, 289breakeven, 288–289, 292, 306, 526bullish, 289case study, 289–292deﬁned, 472example of, 287exit strategies, 287–288, 306market opportunity, 289, 292, 526overview of, 180–181, 286–287,
289, 292, 512, 526
risk graph, 290risk/proﬁt proﬁle, 289, 292, 306,
526
Dow Jones Utility Average, 354Down market, 2Downtrends, 87, 422Duration of contract, signiﬁcance of,
14–15, 47–48
Earnings, generally:
announcements, 199estimates, 17–18reports, 190, 445signiﬁcance of, 171
Eastman Kodak (EK), 237–238eBay (EBAY), 248–249Economic analyses, components of:
bonds, 384–387, 401economic data, 387–391federal funds rate, 397–398Federal Reserve, role of, 388,
391–393, 401–402
inﬂation, 395–397interest rates, 384–387, 401–402overview of, 382–384Securities and Exchange
Commission (SEC), 393–395
stocks, 384–387, 401U.S. dollar, 399–400
Economic indicators, 387–391,
401–402
strategy road map, 305–307
Direct-access ﬁrms, 340Direction, signiﬁcance of, 14–15
Economic news, market impact, 25Economic recovery, 1Economic theory, 384
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563
EDGAR Online, 417Edgetrade, 340Educational web sites, 495–496Ego, dealing with, 479–480Electronic communication networks(ECNs), 339–340, 358–359
Electronic trading, delta-based, 
implications of, 47, 227, 232triple witching, 48
Expiration date, 34, 36, 43, 45, 47–48,56–58, 120, 123, 125, 157–159,161
Expiration month codes, 503Extrinsic value, see Time value
316
Elliott wave, 402Embezzlement, 340Employment cost index (ECI), aseconomic indicator, 389, 392
Employment report, 194, 389Energy markets, 182Enron, 394Envy, 479Equities market, 25eSignal, 492E*Trade, 333, 343E*Trade Professional, 340Eurodollars, 27–29Euronext.life, 29European-style options, 33, 72Euro Stoxx 50, 31Event-based adjustments, 316–317Event-driven markets, 435–436Exchange-traded funds (ETFs),
32–33, 48–49, 506
Exchanges, contact information,
496–497
Exercise order, 363Exercise price, 64Exercising options, 33–35, 37Exit points, 83, 407–408. See also
Exit strategies
Exit strategies, see speciﬁc types of
trades
exercising, 70–71importance of, 40, 69–70, 451,
463–464
offsetting, 70–71Expensive options, 15Expiration, see Expiration date
cycles, 47–48, 62–65Greeks and, 178–179
Factory orders, as economic
indicator, 391
Fair dealing, 345Fair value, 38Fast-moving market, 263Fear factor, 423, 428February expiration cycle, 47, 63–64Federal funds rate, 397–398Federal Open Market Committee(FOMC), 392, 397–398Federal Reserve, 87, 383, 388,
391–393, 396–397, 401–403
Fill or kill order, 361Financial commodities:
characteristics of, 26–27currency markets, 28–29debt instruments, 27–28exchange-traded funds (ETFs),
32–33
index markets, 30–32single stock futures (SSFs), 29–30Financial markets, inﬂuential factors,
194
Financial security, as motivation, 
8–9
Financial services sector, 24Financial statements, 416–417Financial television programs,
440–442, 454
Financial Times Stock Exchange
(FTSE) Index, 31Fixed income securities, 406Fixed life, 47Flexible investment plan,
development of, 12–13
Flight to quality, 401Floor broker, 355
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INDEX
Floor traders, 12, 46, 164–165, 173,
311, 356, 369Forecasting, 469–470FOREX, 348–350Forward volatility skew, 250, 261Four-letter stocks, 60Front running, 340Full-service broker, functions of,
331–332, 363Full-service ﬁrms, 342Fundamental analysis, 83, 416–421,
480
Futures, generally:
characteristics of, 26–27ﬁnancial commodities, 27–33 margin/margin requirements, 74,
374–375, 377
options distinguished from, 34physical commodities, 27ratio put spreads, 239
Gamma, 176–180, 185–186Gates, Bill, 446General Electric (GE), 58, 240–242Gentile, Tom, 40Global commerce, 399–400Going long, 13, 55, 81–82Gold futures, 36–37Good till canceled (GTC) orders, 336,
362
Government bonds, 27Government securities, 406Greed, 341, 414, 423, 479Greeks:
applications, 185–186charting, 462deﬁned, 175–176delta, 68, 176–177, 185, 454gamma, 176–180, 185risk assessment, 176, 179–180theta, 69, 176, 178–180, 185, 314,
454
time decay and, 180–181, 185vega, 176, 178–181, 185–186volatility and, 181–185
Green stocks, 20, 22Greenspan, Alan, 388, 393–394, 402Gross domestic product (GDP), 390,
392
Gross national product (GNP), 399Growth stocks, 20, 22
Health-related sectors, 24Hedge funds, 350Hedgers, characteristics of, 26–27Hedges/hedging, 28, 173, 311, 372,
429
Hedge wrappers, 310High-grade stocks, 103High-low-close (HLC) chart, 455–457Highs/lows, implications of, 450High-volatility market, 125Historical volatility, 39–40, 170, 178,
184, 199
Holding Company Depositary
Receipts (HOLDRS), 32, 219
Home Depot (HD), 205–207Hot tips, 434Housing starts, as economic
indicator, 390Huzienga, Wayne, 446
IBM, 18, 29, 35, 43–44, 51, 53, 58, 60,
65–66, 73, 168, 265–266, 274–275,279–280, 377
Illiquid markets, 39Implied volatility (IV):charting, 462–464deﬁned, 473implications of, 40, 96–97, 107, 120,123, 125, 155, 159, 161, 170–171,180–184, 199, 225, 229, 243, 255,258–259, 261, 286, 288, 292, 298,300–301, 307, 309, 428–429, 454
investment strategies, overview of,
474
trade selection and, 470–473Implied volatility indicator (VXN),
431–432
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Index
565
Import/exports, as economic
indicator, 389, 399–400
Incentive programs, 62Inco Limited (N), 145–146Income statement, 418–419Income stocks, 20, 22Indexes, listing of, 509Index markets, 30–32Individual investors, 46, 410Individual retirement account (IRA),
6
Industrial production index, aseconomic indicator, 391Inﬂation, 383, 387–388, 395–397, 
401
Information resources:
data service providers, 491–493Internet sites, 493–502trading media sources, 485–491types of, generally, 39, 62, 67, 163,
characteristics of, generally, 44,
101–102
credit spreads, 148deep, 68 delta, 178delta neutral trades, 166–167, 
169, 172–173, 188, 244, 251–252, 257–258, 260–261, 263, 317exercising, 71expiration cycle, 48Greeks and, 179–180intrinsic value, 65, 68long call strategy, 92offsetting, 70 order placement, 363puts, 54–55range-bound market, 267, 
271–272, 291
vertical spreads, 131
183, 200, 377
Intrinsic value, 65–68, 100, 131, 
Initial public offerings (IPOs), 24–26,
176, 265, 307
411
Insider trader, 345Installment debt indicator, 387Institute of Supply Management(ISM), 387–388, 390, 401Intel (INTC), 24, 92–94, 253–254Interbank, FOREX market, 
348–349
Interest income, 406Interest rates:
Investing, characteristics of, 
6–7
Investment Advisers Act of 1940, 
394
Investment capital, 406–407Investment Company Act of 1940,
394
Investment Company Institute (ICI),
426
Investment criteria:
implications of, 27, 45, 47, 383–387,
computerized trading systems,
401–403, 435
412–413
margin accounts, 374International derivatives, 29International Securities Exchange
(ISE), 352, 354, 496
Internet, as information resource,
163, 200. See also Web sites
Internet bubble, 1, 393Internet stock, 326–327In-the-money (ITM) options:
assignment, 71–73calls, 50–51
exit points, 407–408high potential returns, 405importance of, 406, 414investment capital constraints,
406–407low risk, 404risk proﬁle, 404–405risk tolerance, 406time requirements, 405trade personality, 406
Investment maxims, 473–478
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INDEX
Investment opportunities,components of:
contrarians, 433fundamental analysis, 416–421implied volatility indicator (VXN),
431–432
nonanalytical methods, 433–434sentimental analysis, 424–430technical analysis, 421–423trading ﬁlter, 434–451Volatility Index (VIX), 430–431
Investment philosophy, see
Successful traders, advice from
Investor conﬁdence, 394–395, 451Investor sentiment, 429Investor’s Business Daily, 39, 67, 183,
426, 442–443, 489–491, 499
January expiration cycle, 47, 63–64Japanese candlestick chart, 455,
457–458, 460–461Japanese yen, 298, 399Johnson & Johnson (JNJ), 29,284–285, 289–290, 475
Journal entries, guidelines for, 15,
119, 121, 124, 155, 157, 159, 161,226, 228–229, 257–258, 260, 262,299–300, 302, 304, 308, 366
Kansas City Board of Trade, 348Key employees, 62Kickbacks, 340Knight/Trimark, 339Knowledge base, importance of,12–14, 453–455. See alsoInformation resources;Investment criteriaKnowledge management, 9
Limit orders, 123, 127, 162, 228, 230,257, 259–260, 262, 299, 302, 304,355, 361Line chart, 456Liquidity, 38, 59, 120, 122, 124–126,
155, 157, 226, 229, 259, 261, 298,300–301, 307, 355
London Financial Futures andOptions Exchange, 29
Long butterﬂy:
breakeven, 268–269, 271, 299, 524case study, 268–271exit strategies, 268, 299iron, see Long iron butterﬂymargin, 269market opportunity, 269, 271, 523mechanics of, 267overview of, 266–267, 269, 271,
512, 524
risk graph, 267, 270risk/proﬁt proﬁle, 269, 271, 299,
523
strategy road map, 298–299
Long call:
breakeven, 91–94, 119–120, 514case study, 92–94exit strategies, 91–92, 120long stock compared with, 94margin, 92, 94, 120market opportunity, 92, 9