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Understanding LEAPS: Using the Most Effective Options Strategies for Maximum Advantage

Book Description

Understanding LEAPS takes a practical, technique-oriented approach to one of today's most fascinating yet little-covered trading vehicles­­Long-term Equity AnticiPation Securities. The only comprehensive and up-to-date guidebook for understanding what LEAPS are and how best to use them in a diversified portfolio, this valuable resource explains complex strategies such as collars and covered writing, and includes an entire section on index LEAPS­­the hybrid product that has become a favorite of both independent and institutional investors.

Table of Contents

  1. Cover Page
  2. Understanding Leaps
  3. Copyright Page
  4. Contents
  5. Introduction
  6. PART 1 The Basics of Options and LEAPS
    1. Chapter 1 Options Basics
      1. Puts and Calls
      2. Option Vocabulary
      3. Alternatives to Your Options
    2. Chapter 2 The Four Basic Option Strategies
      1. Buying Calls
      2. Buying Puts
      3. Writing Calls
      4. Writing Puts
      5. Shorting Stock
    3. Chapter 3 LEAPS: How They Differ from Other Options
      1. Underlying Stock
      2. Expiration Cycle
      3. Strike Prices
      4. Ticker Symbols
      5. Pricing Issues
      6. Historical Perspective
      7. Traders and Investors
  7. PART 2 Strategies that Really Work with Equity LEAPS
    1. Chapter 4 Buying LEAPS Calls as a Trading Strategy
      1. Defining a Trade
      2. Buying Calls: Choosing the Appropriate Expiration Date
      3. Buying Calls: Choosing the Appropriate Strike Price
      4. Broadening the Analysis
      5. Reality Check
      6. And the Major Assumption Was …
      7. Getting Out
    2. Chapter 5 Buying LEAPS Calls as an Investment Strategy
      1. Purchasing LEAPS in Order to Acquire Stock
      2. LEAPS as an Alternative to Purchasing Stock on Margin
    3. Chapter 6 Diagonal Spreads
      1. Enter LEAPS
      2. Static Returns
      3. The Worst-Case Scenario
      4. The Second Worst-Case Scenario
      5. Monitoring and Follow-Up
      6. Assessing the Risk of Early Assignment on Short Calls
    4. Chapter 7 Buy Stock, Buy Call Ratio Spread
      1. Who Should Consider This Strategy
      2. The Position Prior to Expiration
      3. A More Bullish Spread
      4. Initiating Ratio Spreads
      5. Closing Out Ratio Spreads
      6. The Eternal Bull
    5. Chapter 8 The Repair Strategy
      1. The Scenario
      2. Restating the Situation
      3. The “Good” News
      4. When Breaking Even Is Not Good Enough
      5. Finding the Repair Strategy That Works
    6. Chapter 9 Collars
      1. The Profit Seeker
      2. Zero-Cost Collars
      3. The Dynamics of LEAPS Collars
      4. Getting Fancy
      5. How Tight Is Your Collar?
  8. PART 3 Other Equity LEAPS Strategies
    1. Chapter 10 Covered Writing with LEAPS
      1. When Would One Use LEAPS as a Covered Write?
      2. Choosing Which Month and Strike to Write
      3. Joan’s Second Equity Position
    2. Chapter 11 Bull and Bear Spreads
      1. A Bull Spread Using LEAPS
      2. Bearish Investors
      3. A Bear Spread Using LEAPS
      4. A Worried Stock Investor Uses a Bear Spread
      5. Bull and Bear Credit Spreads
      6. Bullish Credit Spreads
      7. Time Spreads
    3. Chapter 12 Synthetic Positions
      1. Lest We Forget
      2. Split-Strike Synthetics
      3. Getting Creative
      4. Synthetic Short Stock Position
    4. Chapter 13 Other LEAPS Strategies
      1. Time Spreads
      2. Buy LEAPS Equity Puts
      3. LEAPS Straddles
      4. The Long LEAPS Strangles
      5. The Iron Butterfly
      6. The Butterfly
      7. The LEAPS Buy/Sell Strategy
      8. Backspreads
  9. PART 4 Index LEAPS Strategies
    1. Chapter 14 Trade Groups of Stock with LEAPS Index Options
      1. Index Options Compared to Equity Options
      2. Automatic Exercise
      3. A.M. Settlement
    2. Chapter 15 Buying LEAPS Index Calls
      1. Index Volatilities Are Lower
      2. Determining “Success”
      3. Considerations When Exiting a Position
      4. Guidelines
    3. Chapter 16 Buying Index LEAPS Puts for Fun and Profit
      1. Buy the Market and Insurance—The Married Put for a Hedger
      2. Motivations for Hedging
      3. A LEAPS Hedging Strategy for a Nervous Bull
      4. Hedging a Position in a Fund
      5. The Speculator Bearish on “The Market”
      6. If It Seems Too Good to Be True …
    4. Chapter 17 LEAPS Index Collars
      1. A Case Study with Index Collars
    5. Chapter 18 LEAPS Index Options—Other Things to Know
      1. Expanded Hours
      2. How to Find Out Which Indexes Trade Options and LEAPS
      3. Naked Index Options
  10. PART 5 Technical Concepts: How Options and LEAPS Work
    1. Chapter 19 Option Pricing
      1. The Variables—First Overview
      2. The Variables—A Little More in Depth
      3. The Square Root of Time
    2. Chapter 20 Option Price Behavior
      1. The Underlying Stock
      2. The Exercise Price
      3. Time to Expiration
      4. Interest Rates and Dividends
      5. Volatility
      6. What Delta Tells You
    3. Chapter 21 Volatility
      1. The Different Meanings of Volatility
      2. Forecasting Volatility
      3. Volatility of Prices and of Returns
      4. Continuous Compounding
      5. Calculating Historical Volatility
      6. Note on Calculating Implied Volatility
    4. Chapter 22 Overvalued and Undervalued Options
      1. Volatility Skew
    5. Chapter 23 Special Factors Relating to LEAPS and Index LEAPS Options
      1. Exotic Options
      2. Index Spreading—The Risk of Using American-Style Index Options
      3. Early Assignment of LEAPS
      4. VIX and VXN
      5. Margin Requirements with LEAPS
      6. Bid-Ask Differentials With LEAPS and Index LEAPS
    6. Chapter 24 The Impact of Taxes
      1. The Sword of Damocles
      2. Options and Taxes
      3. Index Options: Special Considerations
      4. Where to Find More Timely Information
      5. LEAPS End-of-Year Tax Strategy
      6. Qualified Covered Calls, Options of 91 Days or More
    7. Chapter 25 Options and LEAPS in Tax-Deferred Accounts
      1. Which Option Strategies May Be Used
      2. Index Options
  11. Appendix Some Favorite Web Sites
    1. Informational Sites
    2. Other Sites
    3. A Note on Software
  12. Index