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Options As A Strategic Investment: 5th Edition

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Get your autographed copy of the revised edition of the Options Bible today!*  

Author: Lawrence G. McMillan

With more than 300,000 copies sold, this blockbuster best-seller is considered to be the bible of options trading. The new 5th edition is completely revised and updated to encompass all the latest options trading vehicles, supplying traders and serious investors with an abundance of new, strategic opportunities for managing their investments.

Don't Trade Options Without It

Personalized by McMillan + Free ShippingThe market in listed options and non-equity option products provides investors and traders with a wealth of new, strategic opportunities for managing their investments. This updated and revised fifth edition of the bestselling Options as a Strategic Investment gives you the latest market-tested tools for improving the earnings potential of your portfolio while reducing downside risk—no matter how the market is performing.

Inside this revised edition are scores of proven techniques and business-tested tactics for investing in many of the innovative new options products available. You will find:

  • A complete and in-depth discussion of the newest class of listed volatility derivatives, both futures and options
  • Portfolio protection techniques explained in depth, using broad-based index put options or the more modern approach—volatility call options
  • New and updated examples and tables, using the current option symbology, lower commission rates, decimalization of prices, portfolio margin, and weekly options
  • Updated strategy techniques using synthetic straddles, iron condor spreads, backspreads, put ratio spreads, and dual calendar spreads

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; techniques for using index options and futures to protect one’s portfolio and improve one’s return; and the implications of the tax laws for option writers, including allowable long-term gains and losses. Detailed examples, exhibits, and checklists show you the power of each strategy under carefully described market conditions.

Click Here for a detailed explanation of the differences between the 4th and 5th editions

Product Details

Hardcover: over 1072 pages
Publisher: Prentice Hall Press; 5 edition (August 7, 2012)

Your Own Study GuideOptions As A Strategic Investment Study Guide

Also available is the Options As A Strategic Investment Study Guide. With reading assignments and quizzes, this study guide will help ensure that you've grasped the key concepts of each chapter.

Reviews

"The options world has a lot to offer investors and traders alike, but it can be dauntingly hard to understand. Since its original publication, Options as a Strategic Investment has answered many a question; and each succeeding edition has answered many more. It is the options reference in our office."
John Bollinger - CFA, CMT, President Bollinger Capital Management, Manhattan Beach, California

"Larry McMillan's Fourth Edition of Options as a Strategic Investment is a must read. This latest version of his original classic presents his latest thinking on options. McMillan is truly the master of his field."
John Murphy - President, Murphy Morris, Inc., Dallas, Texas

"Larry's book is the bible of the options community. It has established the benchmark by which all other option books are compared - and none measure up."
Alex Jacobson - Vice President, International Securities Exchange, New York, New York

"Larry has taken options education into the 21st century with this book. His insights into trading concepts will always stand the test of time. Keeping up with the latest information on options is mandatory and no one does it more masterfully than Larry."
Mark D. Cook - Professional Options Trader, Mark D. Cook Trading Instruction, East Sparta, Ohio

"The options product is the premier tool for managing risk, but most professionals are no longer taught about it, and individual investors shun it because of its supposed complexity. Mr. McMillan not only makes this risk management tool easy to understand, but fun to learn. Did you realize that if you own a car you own a put? Read the book and find out how you are already using options as a risk management tool without realizing it. This book should be read by everyone - professionals and individual investors alike."
Thomas J. Dorsey - President, Dorsey, Wright & Assoc., Richmond, Virginia

"The best one-stop source of understandable option information that you can act on immediately. Every serious investor should read this book."
Ken and Daria Dolan - Heard daily across America on the WOR radio network.

"Mr. McMillan is well established as the leading authority on options trading and information. His contributions to this body of information are well documented and acknowledged by professionals thought the securities industry. This book is an important part of any serious trader's library. I highly recommend it to both inexperienced and experienced option traders alike."
Tom DeMark - System Designer and Hedge Fund Consultant, Phoenix, Arizona

Reader Testimonial

"One of the first gifts I received when I started working on a trading desk for an arb fund was your book Options As A Strategic Investment. It has been invaluable, you write very clearly and to the point. As a neophyte who had just passed the series 7 and working on the series 4, most books on options would have been absolutely overwhelming. Your book presents a clear progressive education on the topic and it is a constant resource."
M. Marchese

Table of Contents

Click each Part below to expand the chapter contents

Part I - Basic Properties of Stock Options
Chapter 1 - Definitions
  • Elementary Definitions
  • Factors Influencing the Price of an Option
  • Exercise and Assignment: The Mechanics
  • The Options Markets
  • Option Symbology
  • Details of Option Trading
  • Order Entry
  • Profits and Profit Graphs
Part II - Call Option Strategies
Chapter 2 - Covered Call Writing
  • The Importance of Covered Call Writing
  • Covered Writing Philosophy
  • The Total Return Concept of Covered Writing
  • Computing Return on Investment
  • Execution of the Covered Write Order
  • Selecting a Covered Writing Position
  • Writing Against Stock Already Owned
  • Diversifying Return and Protection in a Covered Write
  • Follow-Up Action
  • Special Writing Situations
  • Covered Call Writing Summary
Chapter 3 - Call Buying
  • Why Buy?
  • Risk and Reward for the Call Buyer
  • Which Option to Buy?
  • Advanced Selection Criteria
  • Follow Up Action
  • A Further Comment on Spreads
Chapter 4 - Other Call Buying Strategies
  • The Protected Short Sale (or Synthetic Put)
  • Follow Up Actions
  • The Reverse Hedge (Simulated Straddle)
  • Follow-Up Action
  • Altering the Ratio of Long Calls to Short Stock
  • Summary
Chapter 5 - Naked Call Writing
  • The Uncovered (Naked) Call Option
  • Investment Required
  • The Philosophy of Selling Naked Options
  • Risk and Reward
  • Summary
Chapter 6 - Ratio Call Writing
  • The Ratio Write
  • Investment Required
  • Selection Criteria
  • The Variable Ratio Write
  • Follow-Up Action
  • An Introduction to Call Spread Strategies
Chapter 7 - Bull Spreads
  • Degrees of Aggressiveness
  • Ranking Bull Spreads
  • Follow-Up Action
  • Other Uses of Bull Spreads
  • Summary
Chapter 8 - Bear Spreads Using Call Options
  • The Bear Spread
  • Selecting a Bear Spread
  • Follow-Up Action
  • Summary
Chapter 9 - Calendar Spreads
  • The Neutral Calendar Spread
  • Follow-Up Action
  • The Bullish Calendar Spread
  • Follow-Up Action
  • Using All Three Expiration Series
  • Summary
Chapter 10 - The Butterfly Spread
  • Selecting the Spread
  • Follow-Up Action
  • Summary
Chapter 11 - Ratio Call Spreads
  • Differing Philosophies
  • Follow-Up Action
  • Summary
Chapter 12 - Combining Calendar and Ratio Spreads
  • Ratio Calendar Spread
  • Choosing the Spread
  • Follow-Up Action
  • Delta-Neutral Calendar Spreads
  • Follow-Up Action
Chapter 13 - Reverse Spreads
  • Reverse Calendar Spreads
  • Reverse Ratio Spread (Backspread)
Chapter 14 - Diagonalizing a Spread
  • The Diagonal Bull Spread
  • Owning a Call for "Free"
  • Diagonal Backspreads
  • Call Option Summary
Part III - Put Option Strategies
Chapter 15 - Put Option Basics
  • Put Strategies
  • Pricing Put Options
  • The Effect of Dividends on Put Option Premiums
  • Exercise and Assignment
  • Conversion
Chapter 16 - Put Option Buying
  • Put Buying versus Short Sale
  • Selecting Which Put to Buy
  • Ranking Prospective Put Purchases
  • Follow-Up Action
  • Loss-Limiting Action
  • Equivalent Positions
Chapter 17 - Put Buying in Conjunction with Common Stock Ownership
  • Which Put to Buy
  • Tax Considerations
  • Put Buyins As Protection for the Covered Call Writer
  • No-Cost Collars
Chapter 18 - Buying Puts in Conjunction with Call Purchases
  • Straddle Buying
  • Selecting a Straddle Buy
  • Follow-Up Action
  • Buying a Strangle
Chapter 19 - The Sale of a Put
  • The Uncovered Put Sale
  • Follow-Up Action
  • Evaluating a Naked Put Write
  • Buying Stock below Its Market Price
  • The Covered Put Sale
  • Ratio Put Writing
Chapter 20 - The Sale of a Straddle
  • The Covered Straddle Write
  • The Uncovered Straddle Write
  • Selecting a Straddle Write
  • Follow-Up Action
  • Equivalent Stock Position Follow-Up
  • Starting Out with the Protection in Place
  • Strangle (Combination) Writing
  • Further Comments on Uncovered Straddle and Strangle Writing
Chapter 21 - Synthetic Stock Positions Created by Puts and Calls
  • Synthetic Long Stock
  • Synthetic Short Sale
  • Splitting the Strikes
  • Summary
Chapter 22 - Basic Put Spreads
  • Bear Spread
  • Bull Spread
  • Calendar Spread
Chapter 23 - Spreads Combining Calls & Puts
  • The Butterfly Spread
  • Combining an Option Purchase and a Spread
  • A Simple Follow-Up Action for Bull or Bear Spreads
  • Three Useful but Complex Strategies
  • Selecting the Spreads
  • Summary
Chapter 24 - Ratio Spreads Using Puts
  • The Ratio Put Spread
  • Using Deltas
  • The Ratio Put Calendar Spread
  • A Logical Extension (The Ratio Calendar Combination)
  • Put Option Summary
Chapter 25 - LEAPS
  • The Basics
  • Pricing LEAPS
  • Comparing LEAPS and Short-Term Options
  • LEAPS Strategies
  • Speculative Option Buying with LEAPS
  • Selling LEAPS
  • Spreads Using LEAPS
  • Summary
Part IV - Additional Considerations
Chapter 26 - Buying Options and Treasury Bills
  • How the Treasury Bill/Option Strategy Operates
  • Summary
Chapter 27 - Arbitrage
  • Basic Put and Call Arbitrage ("Discounting")
  • Dividend Arbitrage
  • Conversions and Reversals
  • More on Carrying Costs
  • Back to Conversions and Reversals
  • Risks in Conversions and Reversals
  • Summary of Conversion Arbitrage
  • The "Interest Play"
  • The Box Spread
  • Variations on Equivalence Arbitrage
  • The Effects of Arbitrage
  • Risk Arbitrage Using Options
  • Pairs Trading
  • Facilitation (Block Positioning)
Chapter 28 - Mathematical Applications
  • The Black-Scholes Model
  • Expected Return
  • Applying the Calculations to Strategy Decisions
  • Facilitation or Institutional Block Positions
  • Aiding in Follow-Up Action
  • Implementation
  • Summary
Part V - Index Options and Futures
Chapter 29 - Introduction to Index Option Products and Futures
  • Indices
  • Cash-Based Options
  • Futures
  • Options on Index Futures
  • Standard Options Strategies Using Index Options
  • Put-Call Ratio
  • Summary
Chapter 30 - Stock Index Hedging Strategies
  • Market Baskets
  • Program Trading
  • Index Arbitrage
  • Follow-Up Strategies
  • Market Basket Risk
  • Impact on the Stock Market
  • Simulating an Index
  • Trading the Tracking Error
  • Summary
Chapter 31 - Index Spreading
  • Inter-Index Spreading
  • Summary
Chapter 32 - Structured Products
  • Part I: "Riskless" Ownership of A Stock or Index
  • The "Structure" of a Structured Product
  • Cash Value
  • The Cost of the Imbedded Call Option
  • Price Behavior Prior to Maturity
  • SIS
  • Computing the Value of the Imbedded Call When the Underlying Is Trading at a Discount
  • The Adjustment Factor
  • Other Constructs
  • Option Strategies Involving Structured Products
  • Lists of Structured Products
  • Part II: Pructs Designed to Provide "Income"
  • PERCS
  • Call Feature
  • A PERCS Is a Covered Call Write
  • Price Behavior
  • PERCS Strategies
  • PERCS Summary
  • Other Structured Products
  • Structure Product Summary
Chapter 33 - Mathematical Considerations for Index Products
  • Arbitrage
  • Mathematical Applications
Chapter 34 - Futures and Futures Options
  • Futures Contracts
  • Options on Futures
  • Futures Option Trading Strategies
  • Commonplace Mispricing Strategies
  • Summary
Chapter 35 - Futures Option Strategies for Futures Spreads
  • Futures Spreads
  • Using Futures Options in Futures Spreads
  • Summary
Part VI - Measuring and Trading Volatility
Chapter 36 - The Basics of Volatility Trading
  • Definitions of Volatility
  • Another Approach: GARCH
  • Moving Averages
  • Implied Volatility
  • The Volatility of Volatility
  • Volatility Trading
  • Why Does Volatility Reach Extremes?
  • Summary
Chapter 37 - How Volatility Affect Popular Strategies
  • Vega
  • Implied Volatility and Delta
  • Effects on Neutrality
  • Position Vega
  • Outright Option Purchases and Sales
  • Time Value Premium is a Misnomer
  • Volatility and the Put Option
  • Straddle or Strangle Buying and Selling
  • Call Bull Spreads
  • Vertical Put Spreads
  • Put Bear Spreads
  • Calendar Spreads
  • Ratio Spreads and Backspreads
  • Summary
Chapter 38 - Distribution of Stock Prices
  • Misconceptions about Volatility
  • Volatility Buyer's Rule!
  • The Distribution of Stock Prices
  • What This Means for Option Traders
  • Stock Price Distribution Summary
  • The Pricing of Options
  • The Probability of Stock Price Movement
  • Expected Return
  • Summary
Chapter 39 - Volatility Trading Techniques
  • Two Ways Volatility Predictions Can Be Wrong
  • Trading the Volatility Prediction
  • Trading the Volatility Skew
  • Volatility Trading Summary
Chapter 40 - Advanced Concepts
  • Historical and Implied Volatility
  • The "Greeks"
  • Strategy Considerations: Using the "Greeks"
  • Advanced Mathematical Concepts
  • Summary
Chapter 41 - Volatility Derivatives
  • Neutrality
  • Calculation of VIX
  • Listed Volatility Futures
  • Other Listed Volatility Products
  • Listed VIX Options
  • Trading Strategies: Directional Signals
  • Using VIX Futures Information
  • Using and Trading the Term Structure
  • Protecting a Stock Portfolio With Volatility Derivatives
  • Other Macro Strategies
  • Hedged Strategies Using Volatility Derivatives
  • Ratio Spreads With VIX Options
  • Volatility Derivatives Summary
Chapter 42 - Taxes
  • History
  • Basic Tax Treatment
  • Exercise and Assignment
  • Special Tax Problems
  • Summary
  • Tax Planning Strategies for Equity Options
  • Summary
Chapter 43 - The Best Strategy?
  • General Concepts: Market Attitude and Equivalent Positions
  • What Is Best for Me Might Not Be Best For you
  • Mathematical Ranking
  • Summary
Postcript
Part VII - Appendices
  • Appendix A - Strategy Summary
  • Appendix B - Equivalent Positions
  • Appendix C - Formulae
  • Appendix D - Graphs
  • Appendix E - Qualified Covered Calls
  • Appendix F- Portfolio Margin
  • Glossary
  • Index

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