About the Author

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Kenneth R. Trester is recognized as a leading international

options advisor. He is a popular speaker at financial conventions

and options trading seminars and has even given seminars in

Russia. Through his market letters, he has originated many of

the options strategies that are industry standards today.

Ken Trester is the author of The Complete Option Player,

now in its 4th edition. It was followed by The Option Players Advanced

Guidebook. Other works include a comprehensive options

home study course, Secrets to Stock Option Success, and

software for options trading, Option Master®, The Push-Button

Option Trader and The Push-Button Option Writer. He has written

numerous articles that have been quoted in such publications

as Barrons and is a contributing author to the

Encyclopedia of Stock Market Techniques. Ken Trester also coauthored

the book, Complete Business BASIC Programming. Besides,

Ken Trester is the editor of The Put & Call Tactician

Advisory Service.

Ken Trester has been trading options since the options exchanges

first opened in 1973. His background combines systems

analysis, operations research and investment management. He

has been the president of a management consulting firm and an

Assistant Professor of Management at the California State University,

Fresno and in the Computer Science Department at

Golden West College. He holds a B.S. and M.B.A. from Utah State

University and has done post graduate work at the University of

Oregon.

60% rule, 52, 260

A

Advisory services, 261–262

AI (Artificial Intelligence) programs,

189–192

Alligator spreads. see Option spreads

Analysis. see Option analysis

Asked price (sell price), 217–218

buying at, 228

limit order and, 224

market makers and, 221

market order and, 224

stop-loss orders and, 248

Asset allocation plan, 267–268

B

Bargain options

identifying, 61–62

see also Cheap options

Baysian Analysis, 181–185

Baysian Decision Rule, 183–184

Beat the Dealer (Thorp, Edward), 281

Beat the Market (Thorp, Edward), 281

Bid price (buy price), 217–218

market makers and, 221

selling at, 228

stop-loss orders and, 248

Black and Scholes model, 156

Bond funds, 267–268

Breakouts, 39

Brokerage firms, online, 218

Bullish strategies, 54

Butterfly spreads. see Option spreads

Buying Leaps®, 268

Buying options. see Option buying

Buy price. see Bid price (buy price)

C

Calendar spread. see Option spreads

Call options

buying, 87–89, 99–100, 115–116

theoretical performance of, 5

writing naked calls, 126

see also [aaa}specific topics

Cash, 267

CBOE Market Volatility Index (VIX),

36–37, 54

Chaos theory, 21

and market declines, 108

and surprise events, 94

and surprise volatility, 115, 136, 271

Charts, 39–41

cheap options and, 272

as predictors of the future, 40–41

for stock near or at top, 53

Cheap options

advantages of, 271–272

grand master plan and, 268

home run options and, 65–67

last month before expiration, and,

73–74

naked writing and, 128

time as asset, 71–72

Collar, 143–144

Commissions, reducing, 217–218

Commodities

60% rule, 52, 260

debit spreads for, designing rules for,

209–210

options, 43, 209–210, 274

seasonal tendencies and, 48–49

supply and demand, effect on, 43

Computers and prediction, 33–34, 51,

88–89

for option analysis, 159–160, 165–167,

172–174, 177–178, 185, 187–192

Conquer the Crash (Prechter, Robert R.,

Jr.), 108

Contrary investors, 35–37

Contrary theory, 79

Costs

reduction through spreads, 207–208

slippage and, 197–198, 201, 217–218,

221–222

sunk costs, 245–246

Covered call writing

disadvantages of, 143–144

grand master plan and, 268

strategies, 145–146

when to use, 139–140

Crashes. see Stock market crashes

Credit spreads. see Option spreads

D

Debit Leaps® spread, 287–289

Debit spreads. see Option spreads

Delta (“bang for your buck”)

delta neutral strategies, avoiding, 203,

260

option analysis and, 169–170, 260

Demand. see Supply and demand

Diversification, 101–102

Dollar averaging, 52

E

Education

internet resources and, 256–257

requirements for, 7–8

Ego, 9, 235–236

Emotions, controlling, 235–236

End of the month phenomenon, 48

Euphoria, 35–37

Events

contrary theory and, 79–80

and surprise volatility, 93–95, 253–254

Executions

of spread orders, 228

see also Trade executions

Exit points, 247

Expiring options, 115–116

diagonal spreads and, 283–286

index credit spreads and, 279–280

F

Fear, 35–37

Feelings, 182–183

Financial instruments, 111–113

Forecasting techniques, 34

Fundamentals, 40–41

Fun money, 241–242

grand master plan and, 268

Futures

buying, 147–151

contracts, 44–45

debit Leaps® spread and, 289

options, 58

prices, 59, 69–70, 163–164, 167, 260

seasonal tendencies and, 48–49

surrogates for, 288

technical charts and, 39–41

tutorial, 295–309

see also Predicting the markets

G

Game plan

grand master plan and, 267–268

proper planning and, 263–264

Genetic algorithms, 34

Grand master plan, 267–268

Greed, 9

Group behavior, 35–37

Gurus, 31–32, 261

H

Hedging, ratio hedges and, 281–282

Hesitation, 70

Highs

supply and demand, effect on, 44

upward trend, likelihood of, 39–41

Historical volatility, 163–164, 167, 260

Hold period, 72

Holidays, 48

Home run options, 65–67

Hot seat concept, 133–134

I

Implied volatility

cheap options and, 272

debit spreads and, 207–208

option analysis and, 165–167, 260, 272

Indexes

CBOE Market Volatility Index (VIX),

36–37, 54

debit spreads for, designing rules for,

209–210

expiring options, buying, 115–116

index credit spread and, 275–277,

279–280

index funds, investment in, 19–20, 52

investment in, 52

Nasdaq Volatility Index (VNX), 54

predicting prices of, 20

S&P 100 Index (OEX), 54

writing index options on, 275

see also Predicting the markets

Inertia, 105

countering, 86

option buying and, 59–60

Institutional influence, 94–95

put option buying and, 99–100

Insurance

financial instruments as, 111–113

grand master plan and, 268

put option buying as, 107–110

structured products as, 111–113

Internet trading

advantages of, 213–214

and controlling order, 224

emotions and, 235–236

internet resources and, 256–257

online brokerage firms and, 218

spreading tactics and, 229–230

trading office as war room, 235–236

web-based scanning programs and,

177–178

Intuitive feelings, 182–183

Investment

60% rule, 51–52, 260

see also [aaa}specific topics

L

Leaps®, 281

Leaps® spreads, 268

Limit order, 224

limit spread orders, 227, 230

Limit price, 221–222

testing the waters, 223–224

Long term options, 281–282

Losing streaks, 24–25

diversification and, 102

fun money and, 241–242

Losses

and buying expiring options, 115–116

cheap options and, 272

cutting, quickness and, 105

inertia and cutting losses, 86

losing control of spread and, 229

losing streaks, 24–25, 102, 241–242

option writing and, 138

ratio hedge and, 281–282

repair strategies and, avoiding, 205

stop-losses and, 247–249

sunk costs and, 245–246

taking, 235–236, 243

Lows

downward trend, likelihood of, 39–41

supply and demand, effect on, 44

Luck, 31

M

Magic Pyramid, 267–268

Market declines

getting out when, 239

index credit spreads and, 276–277

put option buying, insurance against,

107–110

Market makers

acting like, 221–222

and limiting size, 231–232

Market order, 224

Markets

60% rule, 52, 260

bottom, determining, 54

CBOE Market Volatility Index (VIX)

and, 36–37

declines, 107–110, 239, 276–277

efficiency of, 20–21

extremes, procedure when, 35–37

profit probability and, 167, 171–174,

181–185, 260

randomness of, 20–21, 39, 51–52

regression back to the mean, 27–28

surprise volatility and, 93–95, 253–254,

271, 275–276

see also [aaa}specific topics; Predicting

the markets; Stock market

Market Wizards (Schwager, Jack D.), 80

Maverick investors, 35–37

Mutual funds

grand master plan and, 268

portfolio insurance, 107–110

reversion back to the mean, 28

underperformance of, 19–20

N

Naked writing

aggressive writing with limited risk,

275–277

defensive steps for, 137–138

distance and, 129

exiting, timing of, 133–134

of expiring put options, 135–136

grand master plan and, 268

as high risk trade, 9

naked put writing, 147–148

win-win strategy for, 149–151

of out-of-the money options, 128–129

probability and, 127–129

of puts and calls, 126

ratio hedge and, 281–282

risk of, 9, 125–126

risk removal through spreads, 195

situational analysis and, 179–180

spreads and, 195–196

stop-losses and, 247–249

surprise volatility and, 134, 136, 148,

275–276

time and, 129

Nasdaq Volatility Index (VNX), 54

Neural nets, 34

News

and predicting the markets, 40–41

“sell on,” 40

situational analysis and, 179–180

surprise volatility and, 93–95, 253–254

O

OEX. see S&P 100 Index (OEX)

Online trading. see Internet trading

Option advisory services, 261–262

Option analysis

analyzing option position, 83–84

Baysian Analysis and, 181–185

cheap options and, 272

computer programs for, 159–160

and delta (“bang for your buck”),

169–170, 260

fair value of option, 163–167, 260, 272

information overload, 259–260

mathematical measurement models for,

155–156

paralysis, avoiding, 259–260

Percent to Double calculation tool for,

profit probability, 167, 171–174,

181–185, 260

scanning programs for, 177–178,

257–258

situational analysis and, 179–180

software programs for, 159–160,

165–167, 172–174, 177–178, 185,

187–192, 257–258

volatility and, 163–164

Option buying

advantages of, 57, 97

AI programs for, 189–192

analyzing option position, 83–84

bargain options, 61–62

buying expiring options, 115–116

buy on dips, 291

call option buying, 99–100, 115–116

cheap options, 58, 60–62, 271–272

cost reduction through spreads,

207–208

of covered call writing, 140

debit Leaps® spread and, 289

debit spreads and, 207–208

and delta (“bang for your buck”),

169–170, 260

diversification in over time, 101–102

fun money and, 241–242

high-price options, effect, 57–59

hold period, 72

home run options, 65–67

hot seat concept and, 134

hype and, 77–78

index options, 115–116

inertia and, 59–60, 105

last month before expiration, and,

73–74

limit price and, 221–222

low-price options, effect, 58, 60

odds of winning, 23–25

patience and, 77

Percent to Double calculation tool for,

171

Profit Box and, 85–86

profit probability, 167, 171–174,

181–185, 260

proper planning and, 263–264

put option buying, 36, 99–100, 107–110

risk reduction by, 13–14

rules of the road, 273–274

spreads and. see Option spreads

stop-losses and, 247–249

straddles and, 87–89

sunk costs and, 245–246

surprise volatility and, 93–95, 97, 105,

253–254, 271

time as asset, 71–72

time as enemy, 71

undervalued options, identifying, 61–62

unrealistic expectations and, 77–78

worth determination, 84

Option game

tutorial, 295–309

see also [aaa}specific topics

Option Player’s Advanced Guidebook,

The (Trester, Kenneth R.), 173

Option plays

aggressive writing with limited risk,

275–277

best plays, scanning programs for,

177–178, 257–258

cheap options, 271–272

diagonal spreads, 283–286

fun money and, 241–242

grand master plan and, 268

limiting size, 231–232

proper planning and, 263–264

ratio hedges, 281–282

rules of the road, 273–274

situational analysis and, 179–180

Option positions

analyzing, 83–84

best plays, scanning programs for,

177–178, 257–258

diversification in over time, 101–102

last month before expiration, and,

131–132

Option prices

analyzing option position and, 83–84

asked price (sell price), 217–218, 221,

224, 228, 248

bid price (buy price), 217–218, 221,

228, 248

call options, 100

cheap options and, 272

and delta (“bang for your buck”), 260,

169–170

flexibility and, 225–226

historical volatility, 163–164, 167, 260

implied volatility, 165–167, 207–208,

260, 272

during market declines, 54, 239

naked writing and, 128–129

option buying, 58, 60, 221–222

option buying and, 57–59

paying more, advantage of, 225–226

as predictors of the future, 41

Profit Box and, 85–86

put options, 100

spread prices, 227–228

stop-loss orders and, 248

sunk costs and, 245–246

surprise volatility and, 93–95, 97,

253–254, 271

testing the waters, 223–224

volatility of, 163–167, 207–208, 260,

272

worth determination and, 84

Options

call options, 5, 87–89, 99–100,

115–116, 126

cheap options, 65–67, 71–74, 128, 268,

271–272

depreciation of, 59, 71, 73

hold period, 72

long term options, 281–282

markets, statistical advantage in, 178

put options. see Put options

theoretical performance of, 4–5

true value of, 155–156

see also [aaa}specific topics

Options as a Strategic Investment

(MacMillan, Larry), 7

Option spreads

advantages of, 195–196

alligator spreads, avoiding, 201

butterfly spreads, avoiding, 197–198,

201

calendar spread, 207–208, 283–286

complex spreads, avoiding, 201

credit spreads, 195, 227–228, 247–249,

268

debit Leaps® spread, 287–289

debit spreads, 195, 207–210, 227–228,

268

delta neutral strategies, avoiding, 203

diagonal spreads, 268, 283–286

grand master plan and, 268

index credit spreads, 275–277, 279–280

Leaps® spreads, 268

long term option debit spread, 287–289

losses, taking, 243

ratio spreads, 268, 282

repair strategies, avoiding, 205

spread positions, 227–230

straddles, 87–89, 195

straps, 195

stripes, 195

time spreads, 283–286

trades, 197–198, 201

vertical spread, 207–208

see also Spreads

Option strategies

60% rule, 52, 260

homework, importance of, 15–16

randomness and, 20–21

ratio hedge, 281–282

worth determination and, 84

Option Strategist, The (MacMillan,

Larry), 262

Option trading

advantages of, 3–5, 21, 34

analysis for. see Option analysis

education requirements for, 7–8

emotions, controlling, 235–236

fun money and, 241–242

homework prior to, 15–16

inertia and, 105

limiting size, 231–232

losing streaks, 24–25

minimizing trading, 197–198, 218

passing on the trade

option analysis and, 160

patience and, 91

playing on paper, 9–10

proper planning and, 263–264

repair strategies, avoiding, 205

risk reduction through, 4–5

track record and, 251

trading office as war room, 235–236

see also [aaa}specific topics; Internet

trading; Option buying; Trade

executions

Option writing

advantages of, 121

aggressive writing with limited risk,

275–277

buying back the option, 120

closing out position and obligation, 120

as consistent income source, 120

covered call writing, 139–140, 143–146

debit Leaps® spread and, 289

debit spreads and, 207–208

defensive steps for, 137–138

and delta (“bang for your buck”),

169–170, 260

exiting, timing of, 133–134

hot seat concept and, 133–134

last month before expiration, and,

73–74, 131–132

longer term puts, 151

losses, taking, 243

naked writing. see Naked writing

of out-of-the-money options, 133–134

profit probability, 167, 171–174,

181–185, 260

and risk, 9, 123–126

as selling options, 120

sell on rallies, 291

shorter term puts, 151

short term options, 123

spreads and. see Option spreads

stop-losses and, 247–249

surprise volatility and, 133–134,

253–254, 275–276

taking and paying off the bet, 119–120

time and, 129, 131–132

winning at, 121, 123–124

and writing expiring put options,

135–136

Orders

limiting size, 231–232

limit orders, 224

limit spread orders, 227, 230

market orders, 224

stop-loss orders, 247–249

Overvalued options

best plays, scanning programs for,

177–178, 257–258, 272

edge advantage of, 291

ratio hedge and, 281–282

P

Panic, 54

Paper trading, 9–10

Patience, 91

and buying expiring options, 115–116

and naked writing of expiring put

options, 136

Percent to Double calculation tool, 171

Performance

managing portfolio and, 15

proper planning and, 263–264

theoretical performance, 4–5, 77–78

track record and, 251

Portfolio

call option buying and, 99–100

diversification in over time, 101–102

grand master plan and, 267–268

insurance, 107–113

managing, importance of, 15

put option buying and, 99–100

scaling and, 75–76

Positions

diversification in over time, 101–102

last month before expiration, and,

73–74

scaling into, out of, 75–76

starting with small positions, 14

Predicting the markets

60% rule, 52, 260

computers and, 33–34, 51

extremes, procedure when, 35–37

forecasting techniques, 34

genetic algorithms and, 34

gurus and, 31–32

methods, 33–34

neural nets and, 34

news and, 40–41

odds of winning, 23–24

option prices as predictors of the

future, 41

randomness and, 19–21

regression back to the mean, 27–28

seasonal tendencies and, 47–49

success and, 31–32

using charts, 39–41

Probability

Baysian Analysis and, 181–185

cheap options and, 272

debit Leaps® spread and, 287–289

index credit spreads and, 276

naked writing and, 127–129

ratio hedges and, 281–282

subjective probabilities, 182–183

see also Profit probability

Profit

cheap options and, 272

debit Leaps® spread and, 287–289

diagonal spreads and, 283–286

fast profits, option writing and,

123–124

goals, 39, 172–174, 185

hot seat concept and, 134

implied volatility and, 167, 260, 272

index credit spreads and, 277

inertia and, 86

letting ride, 67

long term profit strategies, 156

patience and, 77, 91

probability. see Profit probability

Profit Box and, 85–86

proper planning and, 264

ratio hedge and, 281–282

scaling into, out of options, and, 75–76

for stock near or at top, 53

straddles and, 87–89

taking, 67, 69–70, 105, 109–110,

248–249

trailing stop-loss and, 248–249

unrealistic expectations of, 77–78

Profit Box, 85–86

Profit probability, 155, 260

Baysian Analysis and, 182–183

option analysis for, 167, 171–174,

181–185, 260

of option buying, 167, 171–174,

181–185, 260

option spreads and, 195–196

of profit, 155, 260

simulators, 172–174, 185

simulators and, 172–174, 185

subjective probabilities and, 182–183

Psychology, 35–36

Put option buying, 36

generally, 99–100

as portfolio insurance, 107–110

purpose, 100

straddles and, 87–89

Put options

during market declines, 54, 107–110,

239

plunging into stock market, contrary

theory and, 79–80

see also specific topics

Put option writing

grand master plan and, 268

longer term puts, 151

naked puts, 126

naked put writing, 147–151

shorter term puts, 151

and writing expiring put options,

135–136

R

Ratio hedge, 281–282

Rationality, 10

Reading

Beat the Dealer (Thorp, Edward), 281

Beat the Market (Thorp, Edward), 281

Conquer the Crash (Prechter, Robert

R., Jr.), 108

Market Wizards (Schwager, Jack D.), 80

Option Player’s Advanced Guidebook,

The (Trester, Kenneth R.), 173

Options as a Strategic Investment

(MacMillan, Larry), 7

Option Strategist, The (MacMillan,

Larry), 262

Recession bottom, 21

Resistance

charts and, 39

strategies and, 39

Risk

analyzing option position and, 83–84

contrary theory and, 79–80

of covered call writing, 139–140,

143–146

debit Leaps® spread and, 289

diagonal spreads and, 283–286

futures contracts, 45

generally, 9

of naked writing, 9, 125–126, 195–196

of option writing, 123–124

patience and, 91

plunging into stock market, 79–80

proper planning and, 263–264

ratio hedge and, 281–282

reduction. see Risk reduction

straddles and, 87–89

unrealistic expectations and, 78

Risk reduction

aggressive writing with limited risk,

275–277

by buying options, 13–14

of covered call writing, 139–140,

143–146

grand master plan and, 268

index credit spreads and, 276–277

of naked writing, 126, 195–196

option spreads and, 195–196

ratio hedge and, 281–282

spreads and, 195–196

surprise volatility and, 253–254,

275–276

through option trading, 4–5

Risk-reward picture

AI programs for, 189–192

edge advantage of, 291

option spreads and, 195–196

proper planning and, 263–264

ratio hedge and, 281–282

Rumor, “buy on,” 40

S

Scaling, 75–76

straddles and, 89

Scanning programs, 177–178, 257–258

Seasonal tendencies, 47–49

diversification and, 102

“Sell in May,” 47–49

Sell price. see Asked price (sell price)

Short positions, 48

Short term moves, 19

Simulators

debit Leaps® spread and, 288–289

implied volatility and, 167, 260

index credit spreads and, 276

profit probability and, 172–174, 185

Situational analysis, 179–180

Slippage

option spreads and, 197–198, 201

pocketing, 221–222

reducing, 217–218

Software programs

AI programs, 189–192

for option analysis, 159–160, 165–167,

172–174, 177–178, 185, 187–192,

257–258

profit probability simulators, 172–174,

185

scanning programs, 177–178, 257–258

selecting, 187–188

S&P 100 Index (OEX), 54

Spreads

Leaps® spreads, 268

option buying and, 195–196

option writing and, 195–196

to reduce option purchase cost,

207–208

spread orders, 227–230

spread prices, 227–228

see also Option spreads

Stock market

buy on dips, 291

group behavior and, 35–37

institutional influence and, 94–95

plunging into, contrary theory and,

79–80

psychology and, 35–36

recession bottom and, 21

reversion back to the mean, 27–28

sell on rallies, 291

see also Specific topics; Markets

Stock market crashes

naked writing and, 125

plunging into stock market, contrary

theory and, 79–80

seasonal tendencies and, 47–49

Stock options

buying, rules of the road, 274

price limits, 58

tutorial, 295–309

Stock prices

Baysian Analysis and, 181–185

covered call writing and, 145–146

historical volatility, 163–164, 167, 260

institutional influence and, 94–95,

99–100

stop-loss price, 59, 69–70

surprise volatility and, 93–95, 97,

253–254, 271

Stocks

60% rule, 52, 260

covered call writing and, 145–146

debit spreads for, designing rules for,

209–210

grand master plan and, 268

group behavior and, 35–37

naked put writing and, 147–151

predicting prices of, 20

psychology and, 35

put option buying and, 99–100

randomness of markets and, 20

risks generally, 3–4

seasonal tendencies and, 47–49

“sell in May,” 47–49

surprise volatility and, 97, 271

surrogates for, 288

technical charts and, 39–41

true value of, 155–156

tutorial, 295–309

see also [aaa}specific topics; Predicting

the markets

Stop-losses

covered call writing and, 140, 143–144

debit Leaps® spread and, 289

diagonal spreads and, 283–286

goals for, 39, 172–174, 185

index credit spreads and, 276, 279–280

naked writing and, 127–128, 247–249

option writing and, 137, 247–249

Profit Box and, 86

for profit taking, 69–70

stop-loss orders, 247–249

stop-loss price, 59–60

straddles and, 89

trailing stop-loss, 248, 289

uses of, 247–249

Stop-loss orders, 247–249

Straddles. see Option spreads

Straps. see Option spreads

Strategies

60% rule, 52, 260

bullish strategies, 54

for covered call writing, 145–146

delta neutral strategies, avoiding, 203

designing, criteria, 39, 289, 291

homework, importance of, 15–16

keeping simple, 203

for losses, 205

for naked put writing, 149–151

for option spreads, 203, 205

option strategies, 15–16, 20–21, 52, 84,

260, 281–282

for option trading, 205

for profit, long term, 156

proper planning and, 263–264

randomness and, 20–21

ratio hedge, 281–282

repair strategies, avoiding, 205

for resistance, 39

worth determination and, 84

Strike price

cheap options and, 71, 73

covered call writing and, 140, 143–144

for expiring options, 116

for financial instruments, 112

high-priced options and, 57

naked writing and, 128–129

straddles and, 87–89

for structured products, 112

undervalued options and, 73

vertical spreads and, 207–208

Stripes. see Option spreads

Structured products, 111–113

Subjective probabilities, 182–183

Sunk costs, 245–246

Supply and demand

charts as pictures of, 39

laws of, 43–45

Support

charts and, 39

strategies and, 39

Surprise volatility, 93–95, 97, 105, 115

cheap options and, 271–272

naked option writing and, 136, 148,

275–276

option writing and, 133–134, 136,

253–254, 275–276

Surrogates, 288

Systems, luck and, 31

T

Tax-loss selling, 47–48

Technical charts, 39–41

Track record, 251

Trade executions

internet trading advantage, 214

testing the waters, 223–224

see also Executions

Trading options. see Option trading

Trading ranges, breakouts and, 39

Trailing stop-loss, 248

debit Leaps® spread and, 289

Trends

chaos theory and, 21

charts and, 39

index credit spreads and, 277

seasonal tendencies, 47–49

Tutorial, 295–309

U

Undervalued options

best plays, scanning programs for,

177–178, 257–258

cheap options and, 272

edge advantage of, 291

home run options and, 65–67

identifying, 61–62

last month before expiration, and,

73–74

time as asset, 71–72

Unexpected, preparing for, 253–254

V

Vertical spread. see Option spreads

VIX. see CBOE Market Volatility Index

(VIX)

VNX. see Nasdaq Volatility Index (VNX)

Volatility

CBOE Market Volatility Index (VIX),

36–37, 54

charts and, 39–41

cheap options and, 272

historical volatility, 163–164, 167, 260

implied volatility, 165–167, 207–208,

260, 272

Nasdaq Volatility Index (VNX), 54

and panic, 54

reversion back to the mean, and, 28

surprise volatility, 93–95, 97, 105, 115,

133–134, 136, 148, 253–254,

271–272, 275–276

W

Warrants, 281

Web-based scanning programs, 177–178,

256–257

Winning streaks, 24–25

Writing options. see Option writing

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Kenneth R. Trester is recognized as a leading international

options advisor. He is a popular speaker at financial conventions

and options trading seminars and has even given seminars in

Russia. Through his market letters, he has originated many of

the options strategies that are industry standards today.

Ken Trester is the author of The Complete Option Player,

now in its 4th edition. It was followed by The Option Players Advanced

Guidebook. Other works include a comprehensive options

home study course, Secrets to Stock Option Success, and

software for options trading, Option Master®, The Push-Button

Option Trader and The Push-Button Option Writer. He has written

numerous articles that have been quoted in such publications

as Barrons and is a contributing author to the

Encyclopedia of Stock Market Techniques. Ken Trester also coauthored

the book, Complete Business BASIC Programming. Besides,

Ken Trester is the editor of The Put & Call Tactician

Advisory Service.

Ken Trester has been trading options since the options exchanges

first opened in 1973. His background combines systems

analysis, operations research and investment management. He

has been the president of a management consulting firm and an

Assistant Professor of Management at the California State University,

Fresno and in the Computer Science Department at

Golden West College. He holds a B.S. and M.B.A. from Utah State

University and has done post graduate work at the University of

Oregon.

60% rule, 52, 260

A

Advisory services, 261–262

AI (Artificial Intelligence) programs,

189–192

Alligator spreads. see Option spreads

Analysis. see Option analysis

Asked price (sell price), 217–218

buying at, 228

limit order and, 224

market makers and, 221

market order and, 224

stop-loss orders and, 248

Asset allocation plan, 267–268

B

Bargain options

identifying, 61–62

see also Cheap options

Baysian Analysis, 181–185

Baysian Decision Rule, 183–184

Beat the Dealer (Thorp, Edward), 281

Beat the Market (Thorp, Edward), 281

Bid price (buy price), 217–218

market makers and, 221

selling at, 228

stop-loss orders and, 248

Black and Scholes model, 156

Bond funds, 267–268

Breakouts, 39

Brokerage firms, online, 218

Bullish strategies, 54

Butterfly spreads. see Option spreads

Buying Leaps®, 268

Buying options. see Option buying

Buy price. see Bid price (buy price)

C

Calendar spread. see Option spreads

Call options

buying, 87–89, 99–100, 115–116

theoretical performance of, 5

writing naked calls, 126

see also [aaa}specific topics

Cash, 267

CBOE Market Volatility Index (VIX),

36–37, 54

Chaos theory, 21

and market declines, 108

and surprise events, 94

and surprise volatility, 115, 136, 271

Charts, 39–41

cheap options and, 272

as predictors of the future, 40–41

for stock near or at top, 53

Cheap options

advantages of, 271–272

grand master plan and, 268

home run options and, 65–67

last month before expiration, and,

73–74

naked writing and, 128

time as asset, 71–72

Collar, 143–144

Commissions, reducing, 217–218

Commodities

60% rule, 52, 260

debit spreads for, designing rules for,

209–210

options, 43, 209–210, 274

seasonal tendencies and, 48–49

supply and demand, effect on, 43

Computers and prediction, 33–34, 51,

88–89

for option analysis, 159–160, 165–167,

172–174, 177–178, 185, 187–192

Conquer the Crash (Prechter, Robert R.,

Jr.), 108

Contrary investors, 35–37

Contrary theory, 79

Costs

reduction through spreads, 207–208

slippage and, 197–198, 201, 217–218,

221–222

sunk costs, 245–246

Covered call writing

disadvantages of, 143–144

grand master plan and, 268

strategies, 145–146

when to use, 139–140

Crashes. see Stock market crashes

Credit spreads. see Option spreads

D

Debit Leaps® spread, 287–289

Debit spreads. see Option spreads

Delta (“bang for your buck”)

delta neutral strategies, avoiding, 203,

260

option analysis and, 169–170, 260

Demand. see Supply and demand

Diversification, 101–102

Dollar averaging, 52

E

Education

internet resources and, 256–257

requirements for, 7–8

Ego, 9, 235–236

Emotions, controlling, 235–236

End of the month phenomenon, 48

Euphoria, 35–37

Events

contrary theory and, 79–80

and surprise volatility, 93–95, 253–254

Executions

of spread orders, 228

see also Trade executions

Exit points, 247

Expiring options, 115–116

diagonal spreads and, 283–286

index credit spreads and, 279–280

F

Fear, 35–37

Feelings, 182–183

Financial instruments, 111–113

Forecasting techniques, 34

Fundamentals, 40–41

Fun money, 241–242

grand master plan and, 268

Futures

buying, 147–151

contracts, 44–45

debit Leaps® spread and, 289

options, 58

prices, 59, 69–70, 163–164, 167, 260

seasonal tendencies and, 48–49

surrogates for, 288

technical charts and, 39–41

tutorial, 295–309

see also Predicting the markets

G

Game plan

grand master plan and, 267–268

proper planning and, 263–264

Genetic algorithms, 34

Grand master plan, 267–268

Greed, 9

Group behavior, 35–37

Gurus, 31–32, 261

H

Hedging, ratio hedges and, 281–282

Hesitation, 70

Highs

supply and demand, effect on, 44

upward trend, likelihood of, 39–41

Historical volatility, 163–164, 167, 260

Hold period, 72

Holidays, 48

Home run options, 65–67

Hot seat concept, 133–134

I

Implied volatility

cheap options and, 272

debit spreads and, 207–208

option analysis and, 165–167, 260, 272

Indexes

CBOE Market Volatility Index (VIX),

36–37, 54

debit spreads for, designing rules for,

209–210

expiring options, buying, 115–116

index credit spread and, 275–277,

279–280

index funds, investment in, 19–20, 52

investment in, 52

Nasdaq Volatility Index (VNX), 54

predicting prices of, 20

S&P 100 Index (OEX), 54

writing index options on, 275

see also Predicting the markets

Inertia, 105

countering, 86

option buying and, 59–60

Institutional influence, 94–95

put option buying and, 99–100

Insurance

financial instruments as, 111–113

grand master plan and, 268

put option buying as, 107–110

structured products as, 111–113

Internet trading

advantages of, 213–214

and controlling order, 224

emotions and, 235–236

internet resources and, 256–257

online brokerage firms and, 218

spreading tactics and, 229–230

trading office as war room, 235–236

web-based scanning programs and,

177–178

Intuitive feelings, 182–183

Investment

60% rule, 51–52, 260

see also [aaa}specific topics

L

Leaps®, 281

Leaps® spreads, 268

Limit order, 224

limit spread orders, 227, 230

Limit price, 221–222

testing the waters, 223–224

Long term options, 281–282

Losing streaks, 24–25

diversification and, 102

fun money and, 241–242

Losses

and buying expiring options, 115–116

cheap options and, 272

cutting, quickness and, 105

inertia and cutting losses, 86

losing control of spread and, 229

losing streaks, 24–25, 102, 241–242

option writing and, 138

ratio hedge and, 281–282

repair strategies and, avoiding, 205

stop-losses and, 247–249

sunk costs and, 245–246

taking, 235–236, 243

Lows

downward trend, likelihood of, 39–41

supply and demand, effect on, 44

Luck, 31

M

Magic Pyramid, 267–268

Market declines

getting out when, 239

index credit spreads and, 276–277

put option buying, insurance against,

107–110

Market makers

acting like, 221–222

and limiting size, 231–232

Market order, 224

Markets

60% rule, 52, 260

bottom, determining, 54

CBOE Market Volatility Index (VIX)

and, 36–37

declines, 107–110, 239, 276–277

efficiency of, 20–21

extremes, procedure when, 35–37

profit probability and, 167, 171–174,

181–185, 260

randomness of, 20–21, 39, 51–52

regression back to the mean, 27–28

surprise volatility and, 93–95, 253–254,

271, 275–276

see also [aaa}specific topics; Predicting

the markets; Stock market

Market Wizards (Schwager, Jack D.), 80

Maverick investors, 35–37

Mutual funds

grand master plan and, 268

portfolio insurance, 107–110

reversion back to the mean, 28

underperformance of, 19–20

N

Naked writing

aggressive writing with limited risk,

275–277

defensive steps for, 137–138

distance and, 129

exiting, timing of, 133–134

of expiring put options, 135–136

grand master plan and, 268

as high risk trade, 9

naked put writing, 147–148

win-win strategy for, 149–151

of out-of-the money options, 128–129

probability and, 127–129

of puts and calls, 126

ratio hedge and, 281–282

risk of, 9, 125–126

risk removal through spreads, 195

situational analysis and, 179–180

spreads and, 195–196

stop-losses and, 247–249

surprise volatility and, 134, 136, 148,

275–276

time and, 129

Nasdaq Volatility Index (VNX), 54

Neural nets, 34

News

and predicting the markets, 40–41

“sell on,” 40

situational analysis and, 179–180

surprise volatility and, 93–95, 253–254

O

OEX. see S&P 100 Index (OEX)

Online trading. see Internet trading

Option advisory services, 261–262

Option analysis

analyzing option position, 83–84

Baysian Analysis and, 181–185

cheap options and, 272

computer programs for, 159–160

and delta (“bang for your buck”),

169–170, 260

fair value of option, 163–167, 260, 272

information overload, 259–260

mathematical measurement models for,

155–156

paralysis, avoiding, 259–260

Percent to Double calculation tool for,

profit probability, 167, 171–174,

181–185, 260

scanning programs for, 177–178,

257–258

situational analysis and, 179–180

software programs for, 159–160,

165–167, 172–174, 177–178, 185,

187–192, 257–258

volatility and, 163–164

Option buying

advantages of, 57, 97

AI programs for, 189–192

analyzing option position, 83–84

bargain options, 61–62

buying expiring options, 115–116

buy on dips, 291

call option buying, 99–100, 115–116

cheap options, 58, 60–62, 271–272

cost reduction through spreads,

207–208

of covered call writing, 140

debit Leaps® spread and, 289

debit spreads and, 207–208

and delta (“bang for your buck”),

169–170, 260

diversification in over time, 101–102

fun money and, 241–242

high-price options, effect, 57–59

hold period, 72

home run options, 65–67

hot seat concept and, 134

hype and, 77–78

index options, 115–116

inertia and, 59–60, 105

last month before expiration, and,

73–74

limit price and, 221–222

low-price options, effect, 58, 60

odds of winning, 23–25

patience and, 77

Percent to Double calculation tool for,

171

Profit Box and, 85–86

profit probability, 167, 171–174,

181–185, 260

proper planning and, 263–264

put option buying, 36, 99–100, 107–110

risk reduction by, 13–14

rules of the road, 273–274

spreads and. see Option spreads

stop-losses and, 247–249

straddles and, 87–89

sunk costs and, 245–246

surprise volatility and, 93–95, 97, 105,

253–254, 271

time as asset, 71–72

time as enemy, 71

undervalued options, identifying, 61–62

unrealistic expectations and, 77–78

worth determination, 84

Option game

tutorial, 295–309

see also [aaa}specific topics

Option Player’s Advanced Guidebook,

The (Trester, Kenneth R.), 173

Option plays

aggressive writing with limited risk,

275–277

best plays, scanning programs for,

177–178, 257–258

cheap options, 271–272

diagonal spreads, 283–286

fun money and, 241–242

grand master plan and, 268

limiting size, 231–232

proper planning and, 263–264

ratio hedges, 281–282

rules of the road, 273–274

situational analysis and, 179–180

Option positions

analyzing, 83–84

best plays, scanning programs for,

177–178, 257–258

diversification in over time, 101–102

last month before expiration, and,

131–132

Option prices

analyzing option position and, 83–84

asked price (sell price), 217–218, 221,

224, 228, 248

bid price (buy price), 217–218, 221,

228, 248

call options, 100

cheap options and, 272

and delta (“bang for your buck”), 260,

169–170

flexibility and, 225–226

historical volatility, 163–164, 167, 260

implied volatility, 165–167, 207–208,

260, 272

during market declines, 54, 239

naked writing and, 128–129

option buying, 58, 60, 221–222

option buying and, 57–59

paying more, advantage of, 225–226

as predictors of the future, 41

Profit Box and, 85–86

put options, 100

spread prices, 227–228

stop-loss orders and, 248

sunk costs and, 245–246

surprise volatility and, 93–95, 97,

253–254, 271

testing the waters, 223–224

volatility of, 163–167, 207–208, 260,

272

worth determination and, 84

Options

call options, 5, 87–89, 99–100,

115–116, 126

cheap options, 65–67, 71–74, 128, 268,

271–272

depreciation of, 59, 71, 73

hold period, 72

long term options, 281–282

markets, statistical advantage in, 178

put options. see Put options

theoretical performance of, 4–5

true value of, 155–156

see also [aaa}specific topics

Options as a Strategic Investment

(MacMillan, Larry), 7

Option spreads

advantages of, 195–196

alligator spreads, avoiding, 201

butterfly spreads, avoiding, 197–198,

201

calendar spread, 207–208, 283–286

complex spreads, avoiding, 201

credit spreads, 195, 227–228, 247–249,

268

debit Leaps® spread, 287–289

debit spreads, 195, 207–210, 227–228,

268

delta neutral strategies, avoiding, 203

diagonal spreads, 268, 283–286

grand master plan and, 268

index credit spreads, 275–277, 279–280

Leaps® spreads, 268

long term option debit spread, 287–289

losses, taking, 243

ratio spreads, 268, 282

repair strategies, avoiding, 205

spread positions, 227–230

straddles, 87–89, 195

straps, 195

stripes, 195

time spreads, 283–286

trades, 197–198, 201

vertical spread, 207–208

see also Spreads

Option strategies

60% rule, 52, 260

homework, importance of, 15–16

randomness and, 20–21

ratio hedge, 281–282

worth determination and, 84

Option Strategist, The (MacMillan,

Larry), 262

Option trading

advantages of, 3–5, 21, 34

analysis for. see Option analysis

education requirements for, 7–8

emotions, controlling, 235–236

fun money and, 241–242

homework prior to, 15–16

inertia and, 105

limiting size, 231–232

losing streaks, 24–25

minimizing trading, 197–198, 218

passing on the trade

option analysis and, 160

patience and, 91

playing on paper, 9–10

proper planning and, 263–264

repair strategies, avoiding, 205

risk reduction through, 4–5

track record and, 251

trading office as war room, 235–236

see also [aaa}specific topics; Internet

trading; Option buying; Trade

executions

Option writing

advantages of, 121

aggressive writing with limited risk,

275–277

buying back the option, 120

closing out position and obligation, 120

as consistent income source, 120

covered call writing, 139–140, 143–146

debit Leaps® spread and, 289

debit spreads and, 207–208

defensive steps for, 137–138

and delta (“bang for your buck”),

169–170, 260

exiting, timing of, 133–134

hot seat concept and, 133–134

last month before expiration, and,

73–74, 131–132

longer term puts, 151

losses, taking, 243

naked writing. see Naked writing

of out-of-the-money options, 133–134

profit probability, 167, 171–174,

181–185, 260

and risk, 9, 123–126

as selling options, 120

sell on rallies, 291

shorter term puts, 151

short term options, 123

spreads and. see Option spreads

stop-losses and, 247–249

surprise volatility and, 133–134,

253–254, 275–276

taking and paying off the bet, 119–120

time and, 129, 131–132

winning at, 121, 123–124

and writing expiring put options,

135–136

Orders

limiting size, 231–232

limit orders, 224

limit spread orders, 227, 230

market orders, 224

stop-loss orders, 247–249

Overvalued options

best plays, scanning programs for,

177–178, 257–258, 272

edge advantage of, 291

ratio hedge and, 281–282

P

Panic, 54

Paper trading, 9–10

Patience, 91

and buying expiring options, 115–116

and naked writing of expiring put

options, 136

Percent to Double calculation tool, 171

Performance

managing portfolio and, 15

proper planning and, 263–264

theoretical performance, 4–5, 77–78

track record and, 251

Portfolio

call option buying and, 99–100

diversification in over time, 101–102

grand master plan and, 267–268

insurance, 107–113

managing, importance of, 15

put option buying and, 99–100

scaling and, 75–76

Positions

diversification in over time, 101–102

last month before expiration, and,

73–74

scaling into, out of, 75–76

starting with small positions, 14

Predicting the markets

60% rule, 52, 260

computers and, 33–34, 51

extremes, procedure when, 35–37

forecasting techniques, 34

genetic algorithms and, 34

gurus and, 31–32

methods, 33–34

neural nets and, 34

news and, 40–41

odds of winning, 23–24

option prices as predictors of the

future, 41

randomness and, 19–21

regression back to the mean, 27–28

seasonal tendencies and, 47–49

success and, 31–32

using charts, 39–41

Probability

Baysian Analysis and, 181–185

cheap options and, 272

debit Leaps® spread and, 287–289

index credit spreads and, 276

naked writing and, 127–129

ratio hedges and, 281–282

subjective probabilities, 182–183

see also Profit probability

Profit

cheap options and, 272

debit Leaps® spread and, 287–289

diagonal spreads and, 283–286

fast profits, option writing and,

123–124

goals, 39, 172–174, 185

hot seat concept and, 134

implied volatility and, 167, 260, 272

index credit spreads and, 277

inertia and, 86

letting ride, 67

long term profit strategies, 156

patience and, 77, 91

probability. see Profit probability

Profit Box and, 85–86

proper planning and, 264

ratio hedge and, 281–282

scaling into, out of options, and, 75–76

for stock near or at top, 53

straddles and, 87–89

taking, 67, 69–70, 105, 109–110,

248–249

trailing stop-loss and, 248–249

unrealistic expectations of, 77–78

Profit Box, 85–86

Profit probability, 155, 260

Baysian Analysis and, 182–183

option analysis for, 167, 171–174,

181–185, 260

of option buying, 167, 171–174,

181–185, 260

option spreads and, 195–196

of profit, 155, 260

simulators, 172–174, 185

simulators and, 172–174, 185

subjective probabilities and, 182–183

Psychology, 35–36

Put option buying, 36

generally, 99–100

as portfolio insurance, 107–110

purpose, 100

straddles and, 87–89

Put options

during market declines, 54, 107–110,

239

plunging into stock market, contrary

theory and, 79–80

see also specific topics

Put option writing

grand master plan and, 268

longer term puts, 151

naked puts, 126

naked put writing, 147–151

shorter term puts, 151

and writing expiring put options,

135–136

R

Ratio hedge, 281–282

Rationality, 10

Reading

Beat the Dealer (Thorp, Edward), 281

Beat the Market (Thorp, Edward), 281

Conquer the Crash (Prechter, Robert

R., Jr.), 108

Market Wizards (Schwager, Jack D.), 80

Option Player’s Advanced Guidebook,

The (Trester, Kenneth R.), 173

Options as a Strategic Investment

(MacMillan, Larry), 7

Option Strategist, The (MacMillan,

Larry), 262

Recession bottom, 21

Resistance

charts and, 39

strategies and, 39

Risk

analyzing option position and, 83–84

contrary theory and, 79–80

of covered call writing, 139–140,

143–146

debit Leaps® spread and, 289

diagonal spreads and, 283–286

futures contracts, 45

generally, 9

of naked writing, 9, 125–126, 195–196

of option writing, 123–124

patience and, 91

plunging into stock market, 79–80

proper planning and, 263–264

ratio hedge and, 281–282

reduction. see Risk reduction

straddles and, 87–89

unrealistic expectations and, 78

Risk reduction

aggressive writing with limited risk,

275–277

by buying options, 13–14

of covered call writing, 139–140,

143–146

grand master plan and, 268

index credit spreads and, 276–277

of naked writing, 126, 195–196

option spreads and, 195–196

ratio hedge and, 281–282

spreads and, 195–196

surprise volatility and, 253–254,

275–276

through option trading, 4–5

Risk-reward picture

AI programs for, 189–192

edge advantage of, 291

option spreads and, 195–196

proper planning and, 263–264

ratio hedge and, 281–282

Rumor, “buy on,” 40

S

Scaling, 75–76

straddles and, 89

Scanning programs, 177–178, 257–258

Seasonal tendencies, 47–49

diversification and, 102

“Sell in May,” 47–49

Sell price. see Asked price (sell price)

Short positions, 48

Short term moves, 19

Simulators

debit Leaps® spread and, 288–289

implied volatility and, 167, 260

index credit spreads and, 276

profit probability and, 172–174, 185

Situational analysis, 179–180

Slippage

option spreads and, 197–198, 201

pocketing, 221–222

reducing, 217–218

Software programs

AI programs, 189–192

for option analysis, 159–160, 165–167,

172–174, 177–178, 185, 187–192,

257–258

profit probability simulators, 172–174,

185

scanning programs, 177–178, 257–258

selecting, 187–188

S&P 100 Index (OEX), 54

Spreads

Leaps® spreads, 268

option buying and, 195–196

option writing and, 195–196

to reduce option purchase cost,

207–208

spread orders, 227–230

spread prices, 227–228

see also Option spreads

Stock market

buy on dips, 291

group behavior and, 35–37

institutional influence and, 94–95

plunging into, contrary theory and,

79–80

psychology and, 35–36

recession bottom and, 21

reversion back to the mean, 27–28

sell on rallies, 291

see also Specific topics; Markets

Stock market crashes

naked writing and, 125

plunging into stock market, contrary

theory and, 79–80

seasonal tendencies and, 47–49

Stock options

buying, rules of the road, 274

price limits, 58

tutorial, 295–309

Stock prices

Baysian Analysis and, 181–185

covered call writing and, 145–146

historical volatility, 163–164, 167, 260

institutional influence and, 94–95,

99–100

stop-loss price, 59, 69–70

surprise volatility and, 93–95, 97,

253–254, 271

Stocks

60% rule, 52, 260

covered call writing and, 145–146

debit spreads for, designing rules for,

209–210

grand master plan and, 268

group behavior and, 35–37

naked put writing and, 147–151

predicting prices of, 20

psychology and, 35

put option buying and, 99–100

randomness of markets and, 20

risks generally, 3–4

seasonal tendencies and, 47–49

“sell in May,” 47–49

surprise volatility and, 97, 271

surrogates for, 288

technical charts and, 39–41

true value of, 155–156

tutorial, 295–309

see also [aaa}specific topics; Predicting

the markets

Stop-losses

covered call writing and, 140, 143–144

debit Leaps® spread and, 289

diagonal spreads and, 283–286

goals for, 39, 172–174, 185

index credit spreads and, 276, 279–280

naked writing and, 127–128, 247–249

option writing and, 137, 247–249

Profit Box and, 86

for profit taking, 69–70

stop-loss orders, 247–249

stop-loss price, 59–60

straddles and, 89

trailing stop-loss, 248, 289

uses of, 247–249

Stop-loss orders, 247–249

Straddles. see Option spreads

Straps. see Option spreads

Strategies

60% rule, 52, 260

bullish strategies, 54

for covered call writing, 145–146

delta neutral strategies, avoiding, 203

designing, criteria, 39, 289, 291

homework, importance of, 15–16

keeping simple, 203

for losses, 205

for naked put writing, 149–151

for option spreads, 203, 205

option strategies, 15–16, 20–21, 52, 84,

260, 281–282

for option trading, 205

for profit, long term, 156

proper planning and, 263–264

randomness and, 20–21

ratio hedge, 281–282

repair strategies, avoiding, 205

for resistance, 39

worth determination and, 84

Strike price

cheap options and, 71, 73

covered call writing and, 140, 143–144

for expiring options, 116

for financial instruments, 112

high-priced options and, 57

naked writing and, 128–129

straddles and, 87–89

for structured products, 112

undervalued options and, 73

vertical spreads and, 207–208

Stripes. see Option spreads

Structured products, 111–113

Subjective probabilities, 182–183

Sunk costs, 245–246

Supply and demand

charts as pictures of, 39

laws of, 43–45

Support

charts and, 39

strategies and, 39

Surprise volatility, 93–95, 97, 105, 115

cheap options and, 271–272

naked option writing and, 136, 148,

275–276

option writing and, 133–134, 136,

253–254, 275–276

Surrogates, 288

Systems, luck and, 31

T

Tax-loss selling, 47–48

Technical charts, 39–41

Track record, 251

Trade executions

internet trading advantage, 214

testing the waters, 223–224

see also Executions

Trading options. see Option trading

Trading ranges, breakouts and, 39

Trailing stop-loss, 248

debit Leaps® spread and, 289

Trends

chaos theory and, 21

charts and, 39

index credit spreads and, 277

seasonal tendencies, 47–49

Tutorial, 295–309

U

Undervalued options

best plays, scanning programs for,

177–178, 257–258

cheap options and, 272

edge advantage of, 291

home run options and, 65–67

identifying, 61–62

last month before expiration, and,

73–74

time as asset, 71–72

Unexpected, preparing for, 253–254

V

Vertical spread. see Option spreads

VIX. see CBOE Market Volatility Index

(VIX)

VNX. see Nasdaq Volatility Index (VNX)

Volatility

CBOE Market Volatility Index (VIX),

36–37, 54

charts and, 39–41

cheap options and, 272

historical volatility, 163–164, 167, 260

implied volatility, 165–167, 207–208,

260, 272

Nasdaq Volatility Index (VNX), 54

and panic, 54

reversion back to the mean, and, 28

surprise volatility, 93–95, 97, 105, 115,

133–134, 136, 148, 253–254,

271–272, 275–276

W

Warrants, 281

Web-based scanning programs, 177–178,

256–257

Winning streaks, 24–25

Writing options. see Option writing

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