The Options Playbook

Featuring 40 options strategies for bulls, bears, rookies, all-stars and everyone in between Ally Invest

Introduction

Option trading is a way for savvy investors to leverage assets and control some of the risks associated with playing the market. Pretty much every investor is familiar with the saying, “Buy low and sell high.” But with options, it’s possible to profit whether stocks are going up, down, or sideways. You can use options to cut losses, protect gains, and control large chunks of stock with a relatively small cash outlay.

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On the other hand, option strategies can be complicated and risky. Not only might you lose your entire investment, some strategies may expose you to theoretically unlimited losses.

So before you trade options, it’s important to think about the effects that variables like implied volatility and time decay will have on your strategy. This Playbook will help you answer those tough questions. No need to ponder, just turn to the strategy.

We’re not going to derive the Black-Scholes option pricing model here. As a matter of fact, this is one of the only times we even mention the Black-Scholes model. It’s nice to know that sort of thing, but the goal here is to provide the essential knowledge needed to trade a specific strategy, not to completely bore the pants off of you.

Throughout this Playbook, you’ll also find “Options Guy’s Tips,” which clarify essential concepts or give you extra advice on how to run a particular strategy. As an indicator of these tips’ importance, there's a little picture of my head next to them like the one you see on the right. So be sure to pay extra attention whenever you see my melon.

I certainly hope you enjoy reading The Options Playbook.

Brian Overby