Table of Contents
Acknowledgments ix
Preface xi
Chapter 1 The Basics 1
Your Mindset
Starting the Journey
These Things Called Stocks
Shopping with the Bulls and Bears
Adding Options to the Mix
The Trend Is Your Friend
What Can You Expect from Trading Options?
We Have Choices
More Terms to Remember
Chapter 2 The Stock Market and Risk-Looking at Trading Personalities 16
What We Watch For
Reason and Emotion
Let's Talk about Greed
Know Thyself
Understanding Risk
Gaining Confidence
Chapter 3 We Begin-Creating Your Plan 24
Exchange Traded Funds (ETFs)
Indexes
Why Purchase Options on Indexes of ETFs?
Why Purchase Stock Options?
A Critical Tool for a Successful Trading Plan
What Do You See?
What Made the First Cut?
Chapter 4 Chart Reading 101 34
Back to Your List and IBD
Checking for Ripeness with Technical Screens
Trend Trading-Examining Trends
Simple Moving Averages (SMAs)
Understanding Option Chains
Long and Short Moving Average Crossovers
Chapter 5 Indicators and Oscillators 56
Relative Strength Index (RSI)
Understanding Volume
Understanding Gaps
Understanding Oscillators
Williams %R
Moving Average Convergence and Divergence (MACD)
Percentage Price Oscillator (PPO)
Understanding Stochastics
Average Directional Index (ADX)
Accumulation/Distribution Line
Chapter 6 The Matter of Puts 83
Applying the Principle behind Puts
The Big and Small Pictures Count
Chapter 7 Putting It All Together-Identifying Buy Signals 88
What to Keep Your Eye On
A Strategy in Action
Buy Signals-Calls
Buy Signals-Puts
Keep Your Eye on the Charts
Another Chart to Analyze
Let's Look for More Opportunities
Looking at a Well-KnownCompany
A NASDAQ Stock
Looking at Another Sector
Looking at ETFs and the Option Index
Chapter 8 Recognizing Sell Signals 125
The 30-Day Rule
The 7-Day Rule
The 7% Rule
Sell Signals-Calls
Sell Signals-Puts
The Technical Analysis
Clear versus Cloudy Thinking
Chapter 9 Setting Up a Trading Account 133
Following the Steps
Other Issues
Virtual Trading
Using Other Tools
Other Features at OptionsXpress
Chapter 10 Volatility 143
Using Volatility
Overall Market Volatility Chart
Introducing the Greeks
Theoretical Value
What to Take Away for Now
Chapter 11 Strategies 151
Examining the Trading Strategies
What to Watch for Once You Are in a Trade
Other Useful Information
When to Start, When to Wait
Chapter 12 Working the Plan 167
Other Tools
Option Chain Chart
The Cost of Trading
Chapter 13 The Pattern Funnel Narrows 179
The Patterns-Triangles, Wedges, Flags, and Pennants
Continuation or Neutral Patterns
Candlestick Patterns-Bullish, Bearish, Reversal, and Neutral
Chapter 14 Q&A with Wendy 193
Is there a daily or weekly routine or schedule that you follow?
Have your goals changed since you started option trading?
What is your frame of mind-your mental approach-when you make an investment?
How are taxes on profits and losses handled?
Can you form a business around option trading?
Is option trading completely an isolated, individual endeavor?
What qualities do you think good traders share?
Are you involved in the market all the time?
Do some women trade only ETFs?
Do you have a favorite stock or a list of stocks you particularly like?
How do you handle losses on an emotional level?
How much of your investment fund do you have invested at any one time? And how much on any one stock?
Do you watch the stock channels on TV? And if so, how do you filter the information?
If an option contract drops to the point that it has no value at its expiration date, do you have to close it, so that you don't have to exercise the option to buy the stock?
Are there option traders who day trade?
When you sell an option contract, are those funds available immediately to reinvest?
What would you say is the most valuable lesson you have learned?
What would you say has been your biggest mistake?
Can a person make a living trading options?
Glossary 203
Appendix: Useful Websites 213
Index 215
About the Authors 221