Vertical Option Spreads
Vertical Options Spreads is a combination of a bona-fide academic research-based study and a complete method to trade credit and debit spreads, along with other complex option combination trades such as iron condors and butterflies. Here, the author has accumulated five years of daily data on the ETF, SPY and provided historical evidence of actual win rates at specific multiples of entry points, both in time and price level. For example, traders will be able to use the weekly options, pick a level of risk and return desired, learn how to place the trade, and then discover the actual percent return that the trade would have yielded.
This must-have resource includes the basics of option trading and contains references to many excellent works by other authors that explore more about the intricacies of option mechanics and trading. It is far more than an analysis of one specific asset, SPY, featuring a study of probability theory and how it has applied to trading over the past five years, including the highly volatile 2007 to 2009 time frame and the more 'normal' 2010 to 2012 time period. The book offer a thorough understanding of how price movement, actual volatility, and implied volatility all provide a complex but workable web in which the informed trader can generate excellent returns. However, the trader must have the discipline to act within the confines of probability and the 'law' of large numbers refusing to place trades based on gut feelings or hunches.
Offers high-probability based trading that uses the new weekly options
Contains handy interactive worksheets that allow traders to select their own risk/return with precision
Includes a website with daily and weekly information on the estimate of the actual standard deviation points on the price spectrum
Vertical Options Spreads offers traders a research-based guide for trading Standard & Poors 500 ETF, SPY using historic and estimated probabilities and returns that will give them an edge in the marketplace.
Dr. CHARLES CONRICK IV has an extensive background in the business, finance, and trading environment. After a long career in investment planning and small to mid-size business valuation, he entered the academic world in 2002 and is now an Associate Professor of Finance at Dickinson State University in Dickinson, North Dakota. Charles has also been an active options trader for the past five years. He holds a Doctorate in Business Administration (DBA) from Argosy University with a double major in accounting and finance. He is a Chartered Financial Analyst (CFA), a Certified Public Accountant (CPA), and a Certified Financial Planner (CFP).
SCOTT HANSON is an accounting professor at a regional university and is an active trader in the options market. Prior to arriving in academia, he held several key financial positions in U.S. corporations and spent some time as an auditor with PricewaterhouseCoopers. Hanson is a CPA, and earned an MBA from Golden Gate University and a master's of accounting from the University of Georgia.
Vertical Option Spreads
S everal decades ago, I was a young recruit in the U.S. Army. Most military veterans forever remember their drill sergeants. Mine was Sergeant First Class Milner-we called him "Yes, Sergeant Milner!" He was a big, burly combat veteran who always appeared to be absolutely angry at the world and especially angry at each of us. I'll forever remember the feel of his hot breath blasting into the side of my face as he bellowed at me for some seemingly imperceptible, but to him heinous, crime that I had committed, such as a speck of lint on the front sights of my M-16 or a bunk that he didn't consider to be perfectly made.
I'm not sure of this, but I suspect that drill sergeants go through a special course of training that equips them with one-liners designed to inflict lasting psychological pain. Sergeant Milner rained many of these one-liners down on me and my fellow soldiers. Probably my favorite insult from Sergeant Milner, which was always issued at a roar, was "What do you think we're running here, some kind of Girl Scout camp?"
In the 38 years since I've been through basic training that epithet has stuck with me. I want to share that epithet with you today. If you are an investor, and surely you are if you have chosen to read this book, then you need to be very serious about investing. It is said that the stock market is a zero-sum game. This implies that in order for me to make a dollar you have to lose a dollar. In order for someone on Wall Street to make a dollar someone else has to lose a dollar. Another common cliché is that "you win a few and you lose a few." For investors this cliché does not hold true, in that we win a few and we lose the rest. You are playing with real money. You are up against the very best and the brightest. There are armies of highly talented people who are working 24 hours a day in very large firms with substantial computer resources and instantaneous data and are situated right at the heart right of the investing beast. If you are going to invest your money in this environment, you are going to have to beat the very best and the very brightest on their home turf and using their rules.
Since you are reading this book you have probably already figured out or at least imagined how tough it is to make money investing. You look at picking the right stocks, picking the right direction; you look at technicals; you look at program trading; you might attend seminars, read tons of books, and watch CNBC until your head is ready to explode. You will search and search for what you consider to be the correct way to profitably invest. This book is the story of the journey of two investors who have maneuvered through the maze of different investing opportunities, methods, and styles that are available to all of us. In this book we will explain what we have studied, what we have attempted, ways we lost money, and ways we made money. In the end we will conclude with a niche strategy for investing in weekly options that we have developed in which we have enjoyed a certain amount of success.
Our intention is to aid other serious investors in arriving at conclusions that are similar to ours without inflicting upon themselves all of the pain and anguish and losses of learning the hard way.
_ Sophisticated versus Casual Investing
We as authors would be considered sophisticated investors in the minds of most people if you just look at our resumes. Between the two of us we have one PhD, three master's degrees, two CPA certificates, one CFA, and one CFP. We have worked in investing, worked in a Big Four accounting firm, worked in senior positions in finance and accounting, and for the past decade have both been college professors in the field of finance. Based on surface appearances most observers would assume that we can make money in the stock market, that we