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ОглавлениеJames B. Bittman
James Bittman is Senior Instructor at The Options Institute, the educational arm of the CBOE, where he teaches courses for public investors, brokers and institutional money managers. He is the author of three books on option strategies, and has presented custom classes all over the world.
Books
Options For The Stock Investor, Probus, 1996
Trading Index Options, McGraw-Hill, 1998
Trading and Hedging with Agricultural Futures and Options, McGraw-Hill, 2001
Trading options
1. Know the difference between using options to speculate and using options to invest.
Speculators are pure traders, short-term market timers with little interest in the underlying stock, and they often use a high degree of leverage. Investors, however, use options to buy, sell, protect, or increase income from stock positions, and investors do not use leverage.
2. Have a plan.
Will a purchased option be exercised or sold if it is in the money at expiration? Covered writers must know whether or not they are willing to sell the underlying stock; if not, at what price will the call be repurchased or rolled to another option? Put writers must know whether or not they are willing to buy the underlying stock; if not, at what price will a short put be repurchased, even if at a loss?
3. You need a three-part forecast.
In option trading you need a forecast for a specific price change in the underlying, for a specific time period and for a specific change in implied volatility. Developing a forecasting technique is a challenge for all traders, but options trading is unique because of the multi-part forecast required.
4. Be disciplined in taking profits and losses.
Have a profit target and close or reduce the size of your position if it is reached. Have a stop-loss point and close or reduce your position at that price. Have a time limit and close or reduce your position if neither the profit target nor the stop-loss point are reached by the end of the time period.
5. Understand and pay attention to implied volatility.
Implied volatility is the volatility percentage that justifies the market price of an option. Volatility in options corresponds to the risk factor in insurance, and implied volatility reflects the market’s perception of the risk, or potential price range, of the underlying stock.
6. Implied volatility has no absolutes.
Option users must develop a subjective feel for what are ‘high’ and ‘low’ levels of implied volatility.
7. ‘Buying under-valued options’ and ‘selling over-valued options’ are not sufficient strategies.
You must focus on your three-part forecast as much as or more than the ‘value’ of an option.
8. ‘Selling options’ is not a better strategy than ‘buying options’.
It is a myth that 80-90% of options expire worthless. Approximately one third, or 33%, of options expire worthless while 10-15% are exercised, and the rest are closed prior to expiration.
9. Trading means buying and selling.
Trading does not mean buying and holding! The goal of trading is to make a net profit after a series of trades. It is, therefore, essential to accept some losses and to look forward without chastising oneself for making mistakes.
10. Trading options is a learning process.
As a beginner, you should enter trades that have only small potential profits or losses, because this will ensure that objectivity can be maintained. Trades must be initiated and closed so that a ‘trading rhythm’ is developed. You need to develop a market forecasting technique and you should be able to explain your trade selection process in a few sentences. Almost anyone can learn to trade if they spend a few hours every week developing their technique.