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Luca Reyes
Luca Reyes

Learn Options Trading from the Master: Options as a Strategic Investment PDF



Options as a Strategic Investment: A Comprehensive Guide for Investors and Traders




Are you interested in learning how to trade options and profit from any market condition? Do you want to discover the secrets of one of the most successful options traders in the world? Do you want to access a free PDF version of the best-selling book on options trading?




lawrencemcmillanoptionsasastrategicinvestmentpdffreedownload



If you answered yes to any of these questions, then this article is for you. In this article, you will learn:


  • What are options and why are they important?



  • Who is Lawrence G. McMillan and what is his book about?



  • How to download the PDF version of the book for free?



  • The basics of options trading: types, terms and concepts



  • The most effective options strategies for different market scenarios



  • How to analyze options using technical, fundamental and volatility tools



  • How to trade options using a broker account and an order platform



  • How to manage your options portfolio and adjust your positions



By the end of this article, you will have a solid foundation of options trading knowledge and skills that will help you achieve your financial goals. You will also get access to a free PDF copy of Options as a Strategic Investment by Lawrence G. McMillan, the definitive guide on options trading.


Introduction




What are options and why are they important?




Options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price (strike price) on or before a certain date (expiration date). The seller (or writer) of the option receives a premium (or fee) from the buyer in exchange for taking on the risk of fulfilling the contract if the buyer exercises his right.


Options are important because they allow investors and traders to:


  • Speculate on the direction or volatility of the underlying asset without owning it



  • Hedge their existing positions or portfolios against adverse price movements



  • Generate income from their idle assets or idle cash



  • Enhance their returns by leveraging their capital



  • Create customized risk-reward profiles that suit their preferences



Who is Lawrence G. McMillan and what is his book about?




Lawrence G. McMillan is a professional trader, author, educator and consultant who has over 40 years of experience in the options market. He is the founder and president of McMillan Analysis Corporation, a leading provider of options education, advisory and software services. He is also the editor of The Option Strategist, a popular newsletter that covers options trading strategies and market analysis.


McMillan is the author of Options as a Strategic Investment, the best-selling book on options trading that has sold over 300,000 copies since its first edition in 1980. The book is widely regarded as the bible of options trading, as it covers everything from the basics to the most advanced techniques and strategies. The book is divided into five parts:


  • Part I: Options Basics - This part introduces the four types of options, the key terms and concepts, and the benefits and risks of trading options.



  • Part II: Options Strategies - This part explains the six categories of options strategies and the most popular options strategies within each category.



  • Part III: Options Analysis - This part shows how to use technical analysis, fundamental analysis and volatility analysis to identify and evaluate trading opportunities.



  • Part IV: Options Trading - This part teaches how to open an options trading account, choose a broker, place an order, execute a trade and manage your portfolio.



  • Part V: Appendices - This part provides additional information and resources on options pricing models, option symbols, option exchanges, option taxation and option software.



How to download the PDF version of the book for free?




If you want to download the PDF version of Options as a Strategic Investment by Lawrence G. McMillan for free, you can do so by following these simple steps:


  • Go to this link, which is one of the web search results for "lawrence mcmillan options as a strategic investment pdf free download".



  • Click on the "Download PDF" button at the bottom of the page.



  • Enter your email address and click on "Send me a link".



  • Check your inbox for an email from OceanofPDF with a link to download the PDF file.



  • Click on the link and save the PDF file to your device.



Congratulations! You have successfully downloaded the PDF version of Options as a Strategic Investment by Lawrence G. McMillan for free. You can now read it on your device or print it out for your convenience.


Options Basics




The four types of options: calls, puts, long and short




The four types of options are:


  • Calls - A call option gives the buyer the right to buy the underlying asset at the strike price on or before the expiration date. The seller of a call option has the obligation to sell the underlying asset at the strike price if the buyer exercises his right.



  • Puts - A put option gives the buyer the right to sell the underlying asset at the strike price on or before the expiration date. The seller of a put option has the obligation to buy the underlying asset at the strike price if the buyer exercises his right.



  • Long - A long position in an option means that you are buying (or owning) the option. You pay a premium to acquire the option and you have the right to exercise it or sell it before it expires.



  • Short - A short position in an option means that you are selling (or writing) the option. You receive a premium to sell the option and you have the obligation to fulfill it if it is exercised by the buyer.



The key terms and concepts: strike price, expiration date, intrinsic value, time value, moneyness, leverage, delta, gamma, theta, vega and rho




The key terms and concepts in options trading are:



  • Expiration date - The expiration date (or expiry date) is the last day on which the option can be exercised or traded. After the expiration date, the option becomes worthless and ceases to exist. The expiration date is determined by the contract and varies depending on the type and style of the option.



  • Intrinsic value - The intrinsic value (or in-the-money value) is the amount by which an option is in-the-money, meaning that it has a positive payoff if exercised immediately. The intrinsic value of a call option is equal to the difference between the current price of the underlying asset and the strike price, if positive, or zero otherwise. The intrinsic value of a put option is equal to the difference between the strike price and the current price of the underlying asset, if positive, or zero otherwise.



  • Time value - The time value (or extrinsic value) is the amount by which an option's premium exceeds its intrinsic value. The time value represents the potential for the option to increase in value before it expires. The time value depends on several factors, such as the volatility of the underlying asset, the time to expiration, the interest rate and the dividends.



  • Moneyness - The moneyness of an option is a measure of how far it is in-the-money or out-of-the-money, meaning how profitable it would be to exercise it immediately. An option is in-the-money if its intrinsic value is positive, out-of-the-money if its intrinsic value is zero, and at-the-money if its intrinsic value is equal to its premium.



  • Leverage - Leverage is the ability to control a large amount of an asset with a small amount of capital. Options provide leverage because they allow you to buy or sell a large number of shares of an underlying asset with a small amount of money (the premium). Leverage can magnify your profits or losses depending on the direction and magnitude of the price movement.



  • Delta - Delta is a measure of how much an option's price changes in response to a change in the price of the underlying asset. Delta is also known as the hedge ratio, because it indicates how many shares of the underlying asset you need to buy or sell to hedge your exposure to an option. Delta ranges from 0 to 1 for call options and from -1 to 0 for put options.



  • Gamma - Gamma is a measure of how much an option's delta changes in response to a change in the price of the underlying asset. Gamma indicates how sensitive an option's price is to changes in the underlying asset's price. Gamma is highest for at-the-money options and decreases as they move further in-the-money or out-of-the-money.



  • Theta - Theta is a measure of how much an option's price changes in response to a change in time. Theta indicates how much an option's value erodes as it approaches its expiration date. Theta is usually negative for long options and positive for short options.



  • Vega - Vega is a measure of how much an option's price changes in response to a change in volatility. Vega indicates how sensitive an option's price is to changes in the underlying asset's volatility. Vega is positive for both long and short options.



  • Rho - Rho is a measure of how much an option's price changes in response to a change in interest rate. Rho indicates how sensitive an option's price is to changes in the risk-free interest rate. Rho is positive for long call options and negative for long put options.



The benefits and risks of trading options




Trading options can offer several benefits, such as:



  • Versatility - Options can be used for various purposes, such as speculation, hedging, income generation and portfolio enhancement.



  • Flexibility - Options can be customized to suit different market views, risk appetites and trading styles.



  • Leverage - Options can provide leverage that can amplify your returns or losses depending on your position and market direction.



  • Limited risk - Options can limit your downside risk to the amount you paid for them (for long positions) or to a predetermined level (for some short positions).



However, trading options also involves several risks, such as:



  • Complexity - Options are complex instruments that require a high level of knowledge and skill to trade effectively.



  • Volatility - Options are sensitive to changes in various factors, such as price, time, volatility and interest rate, which can affect their value unpredictably.



  • Liquidity - Options may have low liquidity, meaning that they may not have enough buyers or sellers at any given time, which can affect their price and availability.



  • Time decay - Options lose value as they approach their expiration date, which can erode your profits or increase your losses.



  • Unlimited risk - Some options positions, such as short calls and short puts, have unlimited risk, meaning that they can expose you to unlimited losses if the market moves against you.



Options Strategies




The six categories of options strategies: bullish, bearish, neutral, volatile, income and hedging




Options strategies are combinations of options positions that are designed to achieve a specific objective or profit from a certain market scenario. There are six main categories of options strategies:



  • Bullish - Bullish options strategies are used when you expect the price of the underlying asset to rise. Examples of bullish options strategies are long call, bull call spread, bull put spread and covered call.



  • Bearish - Bearish options strategies are used when you expect the price of the underlying asset to fall. Examples of bearish options strategies are long put, bear put spread, bear call spread and protective put.



  • Neutral - Neutral options strategies are used when you expect the price of the underlying asset to remain stable or move within a narrow range. Examples of neutral options strategies are short straddle, short strangle, iron condor and butterfly spread.



  • Volatile - Volatile options strategies are used when you expect the price of the underlying asset to move significantly in either direction. Examples of volatile options strategies are long straddle, long strangle, straddle strangle swap and long guts.



  • Income - Income options strategies are used when you want to generate a steady income from your existing assets or cash. Examples of income options strategies are covered call, cash-secured put, naked put and credit spread.



  • Hedging - Hedging options strategies are used when you want to protect your existing positions or portfolios from adverse price movements. Examples of hedging options strategies are protective put, collar, delta hedging and gamma hedging.



The most popular options strategies: covered call, protective put, long straddle, long strangle, iron condor, butterfly spread, collar and calendar spread




The most popular options strategies are:



  • Covered call - A covered call is a bullish strategy that involves selling a call option on an asset that you own. You receive a premium for selling the call option and you retain the upside potential of the asset up to the strike price. However, you also limit your maximum profit and give up your right to sell the asset above the strike price. A covered call is suitable for investors who want to generate income from their assets and have a moderate bullish outlook.



  • Protective put - A protective put is a bearish strategy that involves buying a put option on an asset that you own. You pay a premium for buying the put option and you protect your downside risk of the asset below the strike price. However, you also increase your breakeven point and reduce your net profit. A protective put is suitable for investors who want to hedge their assets against a possible decline in price and have a moderate bearish outlook.



  • Long straddle - A long straddle is a volatile strategy that involves buying a call option and a put option on the same asset with the same strike price and expiration date. You pay a premium for buying both options and you profit from a large movement in either direction of the asset's price. However, you also face a high breakeven point and a high risk of losing your entire premium. A long straddle is suitable for traders who expect a significant change in the asset's price and have no directional bias.



  • Long strangle - A long strangle is a volatile strategy that involves buying a call option and a put option on the same asset with different strike prices but the same expiration date. The strike price of the call option is higher than the strike price of the put option. You pay a premium for buying both options and you profit from a large movement in either direction of the asset's price. However, you also face a higher breakeven point and a higher risk of losing your entire premium than a long straddle. A long strangle is suitable for traders who expect a significant change in the asset's price and have no directional bias but want to reduce their upfront cost.



the same expiration date (a long strangle). The strike price of the short call option is higher than the strike price of the long call option and the strike price of the short put option is lower than the strike price of the long put option. You receive a net premium for selling and buying the options and you profit from a stable or moderate movement in either direction of the asset's price within a certain range. However, you also face a limited profit potential and a large risk of losing more than your premium if the asset's price moves beyond the range. An iron condor is suitable for traders who expect a low volatility in the asset's price and have a neutral outlook.


  • Butterfly spread - A butterfly spread is a neutral strategy that involves buying a call option and a put option on the same asset with different strike prices but the same expiration date (a long strangle) and selling two call options and two put options on the same asset with different strike prices but the same expiration date (a short straddle). The strike price of the long call option is higher than the strike price of the short call option and the strike price of the long put option is lower than the strike price of the short put option. The strike prices of the short options are usually equal to or close to the current price of the asset. You pay a net premium for buying and selling the options and you profit from a small movement in either direction of the asset's price within a narrow range. However, you also face a limited profit potential and a large risk of losing more than your premium if the asset's price moves beyond the range. A butterfly spread is suitable for traders who expect a very low volatility in the asset's price and have a neutral outlook.



  • Collar - A collar is a hedging strategy that involves buying a put option and selling a call option on an asset that you own. The strike price of the put option is lower than the current price of the asset and the strike price of the call option is higher than the current price of the asset. You receive a net premium or pay a net cost for buying and selling the options and you protect your downside risk of the asset below the strike price of the put option. However, you also limit your upside potential of the asset above the strike price of the call option. A collar is suitable for investors who want to hedge their assets against a possible decline in price and have a conservative bullish outlook.



the options and you profit from a difference in the time decay of the options. However, you also face a risk of losing your premium or credit if the asset's price moves significantly in either direction. A calendar spread is suitable for traders who expect a low volatility in the asset's price and have a neutral outlook.


Options Analysis




How to use technical analysis and chart patterns to identify trading opportunities




Technical analysis is a method of analyzing the historical price and volume data of an asset to identify patterns, trends and signals that indicate the future direction and magnitude of the price movement. Technical analysis can help you to:



  • Determine the current trend and its strength



  • Identify support and resistance levels



  • Recognize reversal and continuation patterns



  • Use indicators and oscillators to measure momentum, volatility and sentiment



  • Apply trading rules and strategies based on technical signals



Chart patterns are specific formations or shapes that appear on the price chart of an asset that indicate the probable outcome of the price movement. Chart patterns can be classified into two types:



  • Reversal patterns - Reversal patterns signal a change in the direction of the existing trend. Examples of reversal patterns are head and shoulders, double top, double bottom, triple top, triple bottom and wedge.



  • Continuation patterns - Continuation patterns signal a pause or consolidation in the existing trend before resuming in the same direction. Examples of continuation patterns are flag, pennant, triangle, rectangle and cup and handle.



To use technical analysis and chart patterns to identify trading opportunities, you need to follow these steps:



  • Select an asset and a time frame that suit your trading style and objectives.



Plot the price and volume data of the asset on a chart using a s


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