4, 514mechanics of, 90–91overview of, 89–90, 92, 94, 128,
511, 514
risk graph, 90, 93risk/proﬁt proﬁle, 92, 94, 119, 514spread, see Bull call spreadstrategy road map, 119–120
Long condor:
breakeven, 272–273, 275–276,
LEAPS, see Long-Term Equity
300–301, 524
Anticipation Securities (LEAPS)
Leeson, Nick, 434Lehman Brothers (LEH), 461–464Leverage/leveraging, 3, 94, 129, 349Levitt, Arthur, 339
case study, 274–275exit strategies, 272, 300–301margin, 273, 276market opportunity, 273, 276, 524mechanics of, 272
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Index
567
overview of, 271–273, 275, 512, 524risk graph, 273–275risk/proﬁt proﬁle, 273, 275–276,
risk graph, 84risk/proﬁt proﬁle, 78, 83, 85, 513
Long straddle:
300, 524
strategy road map, 300–301Long futures, delta neutral trades,
166
Long iron butterﬂy:
breakeven, 276–279, 281, 302–303,
525
case study, 279–281deﬁned, 472exit strategies, 277, 279, 302margin, 278, 281market opportunity, 278, 281, 525mechanics of, 277overview of, 276–278, 281, 512, 525risk graph, 278, 280risk/proﬁt proﬁle, 278, 281, 525strategy road map, 301–303
Long option, 162Long put:
breakeven, 108–109, 124, 515case study, 109–110delta neutral trades, 166exit strategies, 108, 124margin, 108–109market opportunity, 108–109, 515mechanics of, 107overview of, 106–109, 511, 515risk graph, 110–111risk/proﬁt proﬁle, 106, 108–109,
124, 128, 515
strategy road map, 123–124
Long stock:
breakeven, 78, 83, 85, 513case study, 83–84characteristics of, 81–92, 128 delta neutral trades, 166exiting position, 83margin, 83, 85market opportunity, 83, 85, 513mechanics of, 82overview, 83, 85, 94, 513proﬁtability, 83
breakeven, 195–197, 199–200,
226–227, 519
case study, 196–198deﬁned, 472exit strategies, 196, 199, 226–227market opportunity, 196–197, 519mechanics of, 194–197overview of, 193–194, 511, 519risk graph, 192, 195, 198, 226risk/proﬁt proﬁle, 195–197, 226selection tactics, 198–200strategy road map, 225–227synthetic, see Long synthetic
straddle
time decay, 226
Long strangle:
breakeven, 208–210, 227–228, 
520
case study, 209–210deﬁned, 472exit strategies, 209, 228margin, 210market opportunity, 209, 520mechanics of, 208–209overview of, 207–208, 210, 511, 520risk graph, 208, 210–211, 228risk/proﬁt proﬁle, 209–210, 228,
520
strategy road map, 227–228
Long strike, 139, 144, 147–148, 156,
158, 160, 162Long synthetic straddle:adjustments, 317–322breakeven, 217–218, 221, 223–225,
229–230, 521
case studies, 218–219, 223–225deﬁned, 191exit strategies, 217–218, 222,
229–230
market opportunity, 218, 221, 223,
522
order placement, 364–365
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568
INDEX
Long synthetic straddle (Continued)overview of, 191–192, 215–216,
221, 228–229, 319
risk graph, 191–192, 217, 221–224,
Margin account, 73–74, 87, 374–376Margin call, 74, 87, 374Market acronyms, 530–532Market analysis, components of, 
229
383
risk/proﬁt proﬁle, 218, 221,
223–225, 229
strategy road map, 228–231using calls, 220–225, 229–230, 512,
Market capitalization, 19Market conditions/environment, 170,
182–183
Market-if-touched (MIT) order, 
521
363
using puts, 216–221, 230, 512, 521
Long-Term Equity AnticipationSecurities (LEAPS):
bull call spreads, 155calendar spreads, 282call ratio backspreads, 259characteristics of, 56–58collar spreads, 293deﬁned, 14–15diagonal spreads, 307expiration, 47, 56–58, 63, 263, 328long straddle, 225–226long synthetic straddle, 229option symbols, 60put ratio backspreads, 251
Long-term options, 57, 101Long-term trades, 76Losing stock/option trades, repair
strategies, 326–327
Losses, dealing with, 129Low-priced shares trade, 446–447Low-risk/high-proﬁt options, 40Low-risk trades/trading, 9, 193Lynch, Peter, 34, 475–476
Magellan Fund, 434Magnitude, signiﬁcance of, 14–15Managerial changes, 199March expiration cycle, 47, 63–64Margin, generally:
characteristics of, 85, 125deﬁned, 74, 373–376in futures, 30requirements, 89, 376–378trades, 73, 373
Market makers, 152, 339Market orders, 127, 361Market personality, 406, 467Market psychology, 46Market research, 40, 341, 414, 454,
467
Market reversal, 138, 263Market valuation, 46Market value, 88Merrill Lynch, 346Micro-cap stocks, 19Microsoft (MSFT), 29, 58–60,
456–457Mid-cap stocks, 19Midwest Stock Exchange, 353Momentum indicator, 422–423Momentum investing, 447–450Monetary policy, 388, 397–398Money-fund balances, 427Money management, importance of,
40, 483
Moneyness, 44, 46, 51Money supply, 396–397Monster Worldwide, 149–150Monthly statements, 414Morgan Stanley Dean Witter, 346Morgan Stanley Oil Service Index, 
33
Mortgage interest, 396Motivation, sources of, 7–8Moving average, 380, 422Moving average
convergence/divergence(MACD), 309, 402
Mutual funds, 1, 427
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Index
569
Naked options, 96, 113, 378Narrow-based indexes, 38Nasdaq Composite Index, 31Nasdaq ETFs, 32–33Nasdaq 100 Index, 26, 31–33Nasdaq 100 QQQ Index (QQQ),32–33, 41, 44, 109–110, 352Nasdaq 100 Trust (QQQ), 84–85, 88,
214
Off-ﬂoor traders, 12, 164, 234, 311,
394
Offsetting transactions, 50, 70–71Oil Service HOLDRS (OIH), 201–202,
219, 223–225
OneChicago, 29–30Online brokerage ﬁrms, 58, 332–334Open, 50Open-high-low-close (OHLC) chart,
National Association of Securities
455–456, 459
Dealers Automated Quotations(NASDAQ), 17, 31, 348, 355, 496
National Futures Association (NFA),
348
Near-term options, 101Near-the-money call option, 286Negative delta, 166–167, 188, 318Net credit, 239–240, 242, 245–246,
Open interest, 59, 171, 429Opportunity cost, 94Option chains, 49, 58–60Option contract, 3Option Delta Values chart, 169Optionetics approach, 64, 326–327,
411, 482–484Optionetics.com:
features of, 58, 62, 69, 163, 263,
257, 262, 276–280, 471
493–494
Net debit, 239–240, 242, 245, 257, 262,267, 273, 299, 302, 304, 471
Platinum site, 78–79, 158, 161, 167,
186, 200, 334, 459–462
Neutral collar, 310Neutral strategies, 474. See alsoDelta neutral tradingNew Market Wizards, The(Schwager), 478
New product development, 446News events, market impact, 17, 46,
199
News media, as information
Option pricing model, 40. See also
speciﬁc option pricing models
Options, generally:
characteristics of, 34–37, 48–50deﬁned, 43–44exchange-traded funds, 37–38exercising, 34–35, 37expiration cycles, 62–65expiration date, 34, 36, 43, 45,
resource, 440–444, 454, 498–501
47–48
Newspapers, as informationresource, 442–444
New York Mercantile Exchange
(NYMEX), 39, 348
New York Stock Exchange (NYSE),
17, 23, 347, 355, 497
Nikkei 225, 31Nortel Systems (NT), 323–326Northrup Grumman (NOC), 98NYSE Composite Index, 31
Odd-lot trading, 426–427Offered down, 17
futures distinguished from, 34 futures options, 36–37historical perspective, 351–352on indexes, 37–38liquidity, 38–39margin on, 377–378 mechanics of, 50–56price determinants, 44–47stock, 36, 72–73stop-loss orders, 379–380strike price, 35, 37, 43–45symbols, 60–62types of, 34–38, 43
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570
INDEX
Options, generally (Continued)
Over-the-counter (OTC) market, 28,
underlying assets, 44versatility of, 33–34volatility, 39–40Options account:
characteristics of, 343–344margin requirements, 336opening procedures, 341–343size requirements, 335–336
Options Clearing Corporation (OCC),
30, 70–72, 351–352
Options Course, The, development
of, 1
Options Industry Council (OIC), 
352
Options trading, generally:characteristics of, 5–8discipline, 40–41, 468–469 strategy selection factors, 469–470success factors, 8–9
OptionsXpress, 334Option symbols, 59–62Order conﬁrmation, 345, 355–356Order ﬂow, 339–340, 356Order fulﬁllment, 355Order placement, 127Organization of Petroleum Exporting
Countries (OPEC), 27OTC relative volume, 428Out-of-the-money (OTM) options:
calls, 50–51characteristics of, generally, 38, 44,
71, 101
delta neutral trades, 167, 169, 171,173, 188, 207–209, 211, 219, 227,231, 235, 244, 258, 260–261, 318
Greeks, 178, 183, 185 intrinsic value, 65–67long call strategy, 92–93 puts, 55range-bound markets, 267, 271,
276, 293, 301, 307 vertical spreads, 131volatility and, 183
355
Overpriced options, 125, 225, 229,
243, 256, 259, 261, 307
Paciﬁc Stock Exchange (PCX), 348,
351, 354, 497Panic selling, 424–425Paper trades/trading, 11, 163, 264Patience, importance of, 10–11, 40Penny stocks, 19Perfectionism, 478–479Personal improvement strategies, 8Personal income, as economic
indicator, 391–392Philadelphia Stock Exchange
(PHLX):
functions of, generally, 33, 348,
351, 354, 497
Semiconductor Index ($SOX), 218
Physical commodities, 27Positive delta, 166–167, 188, 313, 318Preferred stock, 19–21Premium(s), 13, 40, 45–47, 68, 89, 92,97, 107, 113, 120, 122–123,125–127, 129, 157–158, 161, 168
Price determinants:
overview of, 44–45premium, 45–47
Price-earnings ratio, 409–410, 428Price movement, Greeks and,
176–182
Price trends, 120, 122, 125–126, 155,157, 225, 229, 259, 261, 298,300–301, 305, 307
Prime rate, 386–387Print media, as information resource,
485–491
Producer Price Index (PPI), 194, 388,
390, 392, 401
Proﬁtability, 67, 186, 195Proﬁts, 165ProﬁtSource, 459–460Protective collar, 292Protective puts, 343–344
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571
Prudential, 346Psychological inﬂuences:
crowd psychology, 428, 481ego, 479–480envy, 479fear, 423, 428greed, 341, 414, 423, 479investor conﬁdence, 394–395, 451investor sentiment, 429panic, 424–425
Put butterﬂy spread, deﬁned, 472Put calendar spread, deﬁned, 472Put/call ratio, 425, 427Put option(s):
at-the-money (ATM), 171 deﬁned, 34–35, 37, 471 delta neutral trades, 191exercising, 70in-the-money (ITM), 44 intrinsic value, 65, 68long, 106–110long synthetic straddles, 216–219mechanics of, 54–56out-of-the-money (OTM), 44, 171protective, 343–344short, 110–114
Rambus (RMBS), 104–105, 117Range-bound markets, trading
techniques:
calendar spread, 281–285, 303–305,
525
collar spread, 292–298, 307–308,
310, 526
diagonal spread, 286–292, 305–307,
527
long butterﬂy, 266–271, 298–299,
526
long condor, 271–276, 300–301, 524long iron butterﬂy, 276–281,
301–303, 525
overview of, 265–266strategy road maps, 298–308volatility skews, 285–286
Range-bound stock, 100Raschke, Linda Bradford, 477–478Ratio backspreads:
call, 243–250, 259–261, 263, 523example of, 464exit strategies for, 255overview, 472popularity of, 263put, 249–255, 261–263, 523
Put ratio backspread:
Ratio call spread:
breakeven, 253–254, 262, 523case study, 253–254 deﬁned, 472example of, 366exit strategy, 255, 262market opportunity, 253–254, 523mechanics of, 251–253overview of, 249–251, 512, 523risk graph, 254risk/proﬁt proﬁle, 253–254, 262, 523strategy road map, 261–262
Put time value, 72
Qs (QQQ), 32Quiet period, 345Quote terms, 505Quotes, information resources,
497–498
breakeven, 235–237, 257, 522case study, 237exit strategies, 242, 257margin, 237market opportunity, 236–237, 522mechanics of, 235–236overview, 234–235, 512, 522risk graph, 236–237risk/proﬁt proﬁle, 236–237, 257,
522
strategy road map, 256–257
Ratio put spread:
breakeven, 239–240, 242, 258–259,
522
case study, 240–242exit strategies, 242, 259margin, 242market opportunity, 240, 242, 522
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INDEX
Ratio put spread (Continued)
mechanics of, 239overview of, 238–239, 512, 522risk graph, 239–241risk/proﬁt proﬁle, 240, 242, 258strategy road map, 258–259
Ratio spreads:
call, 234–238, 256–257, 512, 522exit strategies, 242put, 238–242, 258–259, 512, 522
Recession, 383Recordkeeping guidelines, 341, 414.See also Journal entries,guidelines for
Red Candle + Doji chart, 461Resistance level, 100. See also
Support and resistance level
Retail sales, as economic indicator,
388, 390, 401
Retail sector, 24Retail stores, as informationresource, 436–437
Return on assets, 419Reverse volatility skew, 161, 256,
259–260, 263
Risk, generally:
assessment techniques, 176,
179–180
context of, 372–373control and balance, 172, 378–381deﬁned, 13perceptions of, 11
Risk curve, 78–80Risk graphs, see speciﬁc types of
trades
delta neutral trading, 11features of, 78–81
Risk management, 1, 3, 6–7, 171, 372Risk minimization, 165Risk mitigation, 28Risk proﬁles, 77–81, 186. See alsospeciﬁc types of tradesRisk/reward proﬁle, 78. See alsospeciﬁc types of tradingstrategies
Risk/reward ratios, 58Risk tolerance, 406Rule 101, 345
S&P, 183. See also Standard & Poor’s
500
S&P Depositary Receipts (SPY), 32S&P 100 Index (OEX), 31, 33,
351–352
Sarbanes-Oxley legislation, 394Scholes, Myron, 184, 351Schwab, Charles, 477Sears, 60Seasonal markets, 435–436Sector indexes, 23Securities Act of 1933, 393Securities and Exchange
Commission (SEC), 74, 190, 339,346, 351, 353, 377, 393–395
Securities Exchange Act of 1934,
393–394
Selectnet (SNET), 360Sellers, characteristics of, 17Selling options, 34–35, 49Sell-offs, 234, 402Sell on opening order, 363Sell stop order, 363Semiconductor HOLDRS (SMH),
135–136, 218–220
Semiconductors, 24Sentimental analysis, 424–430Series of options, 53Short call:
breakeven, 96–99, 121, 514case study, 97–99 delta neutral trades, 166exit strategies, 97, 121margin, 97, 99market opportunity, 97, 99, 514mechanics of, 96overview of, 95–97, 99, 128, 511,
514
risk graph, 95, 98risk/proﬁt proﬁle, 97, 99, 121, 514strategy road map, 120–121
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Short futures, delta neutral trades,
Short strangle:
166
Short interest, 427Short put:
breakeven, 110, 112–114, 125, 515case study, 112–114exit strategies, 112, 125–126margin, 113–114, 125market opportunity, 113–114, 515mechanics of, 112overview of, 110–112, 128, 511, 
519
risk graph, 114–115risk/proﬁt proﬁle, 110–114, 125,
515
strategy road map, 125–126
Short sales:
characteristics of, 427restrictions, 345
Short sellers, 216Short selling stocks, margin on, 
377Short stock:
breakeven, 87, 89, 513case study, 87–89 delta neutral trades, 166exit strategies, 87margin, 87, 89market opportunity, 87, 89, 513mechanics of, 86–87overview of, 85–87, 89, 128, 513risk graph, 88risk/proﬁt proﬁle, 87, 89, 154
breakeven, 212–214, 520case study, 213–215example of, 