New eBook: Iron Condors

I’m very pleased to announce that my new eBook, Iron Condors, has been published. It is available as q paperback ($9.95). NOTE: eBook ($3.99) will be available tomorrow Jul 29.

IronCondorsVOL2

This is not your ordinary “How to trade an option strategy” book. Read the full description below.

To celebrate the launch, I’m offering a special promotion to anyone on my e-mail list. If you are not already on the list, subscribe now and become eligible for the promotion.

So what’s the deal?

Buy either version of Iron Condors by Mark D Wolfinger and I’ll give you an eBook of your choice from the list below.
Offer expires 8/31/2014.

Here’s what to do

  1. Join the mailing list. You can unsubscribe after the promotion.
  2. Buy the eBook. No matter where you buy it, you will receive a receipt.
  3. Forward that receipt via e-mail to: books (at) mdwoptions (dot) com
  4. In the message, tell me which of the four eBooks (below) you prefer — and also the format: Kindle (.mobi) or ePub.
  5. I’ll send the eBook via e-mail

4Books

Book Description

Iron Condors is the third book in the “Best Option Strategies” series and each offers a hands-on education for some of the most useful option strategies. It is intended to be very different from all other books about iron condors.

Expect to learn the basic concepts of trading iron condors: (1) How to decide which options are suitable for your iron condor. Know in advance that there is seldom a single ‘best’ position that suits all traders; (2) Ideas — with specific examples — on how to manage risk; (3) Figuring out when to exit. We’ll discuss the pros and cons of locking in profits quickly (not a good idea) vs. holding longer (but not too long).

There is more that makes this book so special. It is not just a “how to” book because I share lessons learned from a lifetime of trading options (starting in 1977 when I became a CBOE market maker). I share my philosophy on iron condor trading and ideas on how a winning trader thinks. The goal is to offer guidance that allows you to develop good trade habits and an intelligent way of thinking about trading. We all learn as we gain experience, but some experience can be destructive when mindsets — that are dangerous to your longevity as a trader — become ingrained habits. This book helps traders avoid developing a difficult-to-break way of thinking.

This book was prepared for an audience that already understands the most basic concepts about options. Although some of the material is suitable for rookies. If you do not understand the difference between a put and call or have zero trading experience, I encourage you to begin with the most basic concepts about options before continuing. There are numerous sources of information, but I recommend my recently updated (2013) The Rookie’s Guide to Options, 2nd edition.

Another decision involves the pre-planned (I encourage preparation of a trade plan for each trade) exit when the target profit is achieved. If you have no profit target, then you will be hard pressed to exit when the trade continues to earn money. As profits accumulate, it becomes a daily decision: hold or exit. It is important to recognize when there is too little remaining profit potential for the prudent trader to hold. The trade plan helps with making good and timely decisions — and that makes you a more disciplined trader.

Closing the position could also be a gut-wrenching decision that locks in a loss and is made because it has become essential to take risk-reducing action. The book offers a solid introduction to risk management for iron condor traders.

The following points represent the foundation of my beliefs, and the book is written accordingly: (1)The ability to manage risk is the most important skill for any trader; (2) Take time to learn about the Greeks. It is not difficult, and it allows you to recognize the risk (and reward) potential for any position; (3) Discipline is necessary when managing risk. It is one thing to say that you understand what risk management is all about, but it is another to put it into practice; (4) Let another trader earn the last nickel or dime on the call and put spreads that comprise the iron condor. Pay a small sum to exit, lock in profits, and eliminate all risk.

The iron condor is most often traded as a single transaction, consisting of four legs. However, it is managed as if it were two positions. This is not a contradiction. This mindset is covered in detail.

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Basic Trading Tenets

I posted a list of my recommended ideas when it comes to trading. You can find them here.

These are ideas that I’ve developed over a lifetime as a trader (1975 thru today).

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iBooks and Me.

A bunch of eBooks about trading options were recently published. Some are good, some not so much. It is difficult to separate the high-quality books from those serve little purpose.

My classic book for beginners from the year 2000: The Short Book on Options (2002) became available as an iBook for the first time today, and I’m proud to join the Apple community.

This book is not for the experienced trader. It is a detailed description of one strategy (writing covered calls) as well as a thorough description of how options work.

The book is also available at your favorite book seller.

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Introduction to the Greeks

The Greeks are easy-to-understand (honest) tools for measuring risk. You, the trader can delve into the math or you can accept the numbers generated by your broker’s (or use another source) software.

The basis of risk management is using the numbers to control the possible gains and losses from your options trading.

At my about.com site I just published a string of articles for newer option traders:

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Risk and Position Size

My latest blog post at options.about.com is all about risk, including a definition and recommendations for choosing an appropriate position size for each trade.

2nd edition cover

2nd edition cover

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The Rookie’s Guide to Options: Intrdoduction

This is an excerpt from the Introduction to The Rookie’s Guide to Options.

You are about to enter the exciting world of stock options. These versatile investment tools possess properties not found elsewhere in the investment universe: limited lifetimes with explicit expiration dates. Options were invented as hedging, or risk-reducing tools, allowing specific risks (described by the Greeks) associated with owning any position to be identified. Thus, each risk factor can be controlled to suit your needs.

Options allow investors to use leverage to take control of far more valuable stock positions with less cash at risk.

Options are versatile and can be used in a variety of strategies, ranging from ultra conservative to outright gambles. I encourage readers to adopt strategies between the extremes.

It is possible to use advanced mathematics when discussing options, but in keeping with the goal of making this an enjoyable learning experience, this book uses nothing more complicated than elementary algebra. Let’s leave the advanced math to the academics.

Equity options are related to stocks. The term used to describe that relationship is derivative. The value of an option is derived from the value of an individual stock or group of stocks (an index). If this sounds complicated, it is not. Computers and calculators do the math for us, and our job is to understand how to use the numbers — just as we learn to use any tool.

This book delivers the background information needed to understand why options do what they do. Note that key word: ‘understand.’ I’m not going to define a term without explaining how it relates to trading options. I’m not going to tell you how to open a trade and then leave you stranded. You will learn to open, manage and exit positions. I do not provide rules to follow. Instead, you get detailed explanations and suggestions that enable you to make your own decisions.

Many trade choices are personal, and I cannot know your specific circumstances. However, I’ll help you find trades and make trade plans that suit your tolerance for risk and financial goals. In other words, we will work within your comfort zone.

The book contains a great deal of background information (Part I), lessons on three basic strategies (Part II), as well as explanations of how to adopt more advanced strategies (Part III).

These lessons are designed to help you use options effectively. That means trading with less risk, increasing the frequency of winning trades, and earning more money (when compared with trading without options). There is one important point: both the basic concepts and basic strategies are easy to understand. As with any other endeavor, the more sophisticated you become, the more you can do. Consider this book to be your college level course—perhaps even an elective course. However, it is not graduate school. Option trading can get very sophisticated and today’s top experts are quants with a PhD in math or physics. The good news is that you do not have to compete directly with them. Option trading is so widespread that there is ample opportunity for everyone.

If you want to become an expert trader, this book will not get you there. However, it is an excellent starting point. And if your objective is to enhance your income by generating earnings with less chance of suffering large losses, then you have come to the right place. You do not have to compete with the professionals. Most of us can succeed by adopting the most basic strategies —if we have the discipline to manage risk. While I appreciate advanced strategies, I use only the methods discussed in this book when trading my personal money.

This guide takes you from the novice stage through the intermediate trader stage. Although intended for option rookies, there is enough meat in The Rookie’s Guide to Options for the investor who already trades options. Re-reading these pages as you gain experience will provide insights you may have missed the first time.

My objective is for you, the reader, to gain a solid understanding of options and learn to use them to improve your investment results. You will not learn everything there is to know about options, but, you will be prepared to trade profitably. If we each do our jobs well, you will come away with a clear understanding of options—how they work and how you can make money by incorporating option strategies into your investing methods.

Be prepared for discussions on risk, including definitions (how much money can be lost vs. the probability of losing), setting risk limits (position size), using calculators to discover the odds that something specific will go wrong (stock doesn’t move your way), etc. Included are ideas on how to handle risky situations. Is it better to get out of the trade or use an ‘adjustment’ trade that reduces risk to an acceptable level (compared with the potential reward)? These are all part of risk management, and included are my thoughts on why survival should be any trader’s top priority. Earning money is important—in fact it is our reason for trading—but it ranks behind risk management, unless you plan to have a very short trading career.

Rookies

In the sports world, a rookie is someone in his/her first year of professional play. The term also refers to someone who is new to a profession. This book was written for newcomers to the world of options—not necessarily investment rookies, but option rookies. The strategies detailed are not the only ones available, but they were chosen because they can be understood and put into practice by traders who have patience and discipline. I stress discipline throughout the book because without it you have almost no chance of becoming a successful trader. Most investors who enter this realm are familiar with stock investing from the standpoint of owning individual stocks (mutual fund ownership does not count, but ETF trading does). If that is your experience, it should be a smooth transition when you add options to your arsenal of investment tools.

If you are brand new to investing, then you have more to learn. However, the good news is that you can get started without having formed any difficult-to-break bad habits.

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Calendar Spreads

I just posted four articles on various aspects of trading calendar spreads. They can be found at options.about.com

  1. Introduction to Calendar Spreads
  2. Market-Neutral Calendar Spreads
  3. Calendar Spreads for Bulls and Bears
  4. Bullish Calendar Spread. An Example
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Volatility and News

Although I am a believer in using options to hedge positions and reduce list, there is no doubt that there are many speculators who use options.

The purpose of today’s post is to warn those speculators about a dangerous trap — one that can be avoided.

News Pending

When a news release is pending, option volume increases because the news may result in a gap opening for the stock price (when the news is better or worse than expected). That is when option buyers make good money — assuming that they got the direction right.

However, there is much more to trading options under these circumstances than the novice trader can anticipate. That option volume pushes prices higher and you cannot pay whatever price is asked when buying options. At least you cannot do that and expect to succeed.

Read more about this scenario at my about.com site.

The discussion continues with a description of how implied volatility is crushed once the news is released. If you are not familiar with the concept that the price of options in the market place is very dependent on implied volatility, take a look here and here.

One method for significantly reducing the cost of playing this game is to trade call or put spreads instead of buying individual options.

http://goo.gl/LksvAg

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