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383036: Managing and Understanding Stock Option Strategies
MGMT-X 433.033

  • Fall 2021
  • Section 1
  • 4 Credits
  • 09/21/2021 to 11/30/2021
  • Modified 09/02/2021

Description

Whether your personal investment style is conservative or aggressive, long-term or short-term, this in-depth course educates individuals on the utilization of options and demonstrates how options can add value to your current investment strategies. Intended for investors who want to utilize options as part of their overall investment mix or for those who already employ options and want to expand their usage, this course explores the basics of options and some of the common misconceptions regarding them. Participants learn about the unique attributes of options and why investors have to think differently when investing in these instruments, whether as a stand-alone investment or in conjunction with existing stock positions. The course includes stock and index option strategies, as well as an understanding of the nomenclature of the terms used in option trading. Additional topics include the use of spreads, straddles, combinations, butterflies, condors, and other intermediate forms of option strategies.

Objectives

By the end of the course, students should understand the workings of the Stock and Index Options market with an emphasis on investment strategies.  Additionally, an education in nomenclature and application should be acquired so students have comfort in leveraging options in any and all investment situations.

Outcomes

By the end of the course, students should 

  • Enhance their current understanding of equities and what drives equity valuations, volatility and trading patterns. Students should also understand the basics behind technical analysis, at least around the terms support and resistance
  • Be able to illustrate the difference between a Call and Put Option, and what underpins and drives the valuation of these diametrically opposed fundamental building blocks within Options trading
  • Learn a few advanced Options Strategies and Know when these strategies are appropriate including the use of Covered and Uncovered Option Writing and how to combine multiple Options together to express a particular sentiment (bullish or bearish) and time horizon (long-term or short-term)
  • Have the ability to place an Options trade and determine projected profit/loss depending on the movement in the underlying security, as well as margin requirements for the contemplated option strategy

Materials

McMillan on Options

  • Author: Lawrence G. McMillan
  • Publisher: John Wiley & Sons, Inc.
  • Edition: Second
  • ISBN: 0-471-67875-9

Recommended additional readings

  • Options as a Strategic Investment, Fifth Edition; by Lawrence G. McMillan
  • Options as a Strategic Investment, Fifth Edition Study Guide; by Lawrence G. McMillan
  • Understanding Options, Second Edition; by Michael Sincere

Recommended additional references

  • Wall Street Journal (daily publication)
  • Investor's Business Daily (daily online, weekly publication)
  • Barron's (weekly publication)
  • CBOE Exchange site (excellent online teaching tools)
  • Yahoo Finance (useful real-time information for stocks and options)

Evaluation

Criteria

Course Grades are based on points.  All assignments, if submitted on time (at the start of class), will be provided a full grade.  Participation is graded in each class, 

Types of evaluations and related weights
Type Weight Topic Notes
Participation 11%

There are 11 weeks in the course, and your regular attendance and participation in class will drive 11% of your total grade.  An A in class is quite challenging without a minimum level of attendance and participation.

Assignments 14%

There are 11 weeks in the course and at least 6 assignments will be provided. Assignments are graded on a completed / not completed basis and are only reviewed if turned in on time.

Quizzes 25%

Two 60 minute quizzes will be administered throughout the course

Final Exam 50%

Final Exam will be open book and use of calculators will be permitted

Breakdown

Letter grades will be based on a curve.

  • A: 90 - 100
  • B: 80 - 89
  • C: 70 - 79
  • F: Below 70

Course Policies

  1. As noted in the grading criteria, attendance and participation is a key part of your learning.  Being in class, on time, and for the full three hours is thus very important. Leaving your camera on is critical, and regular and active participation is expected
  2. Late assignments will be rarely accepted, and only if agreed upon in advance.  Otherwise, assignments are due at the start of class
  3. Students should come in with the goal of learning every class.  Participation is key to learning, so volunteering to demonstrate how well you are able to meet learning objectives is great.

Institutional Policies

Student Conduct

Students are subject to disciplinary action for several types of misconduct or attempted misconduct, including but not limited to academic dishonesty, such as cheating, multiple submission, plagiarism, or knowingly furnishing false information to the University; or behavioral misconduct, such as theft or misuse of the intellectual property of others, harassment, or disruption of the learning environment. Students are encouraged to familiarize themselves with the Student Rights & Responsibilities Policy and to report concerns regarding at: https://www.uclaextension.edu/pages/str/studentConduct.jsp.

Services for Students with Disabilities

In accordance with the Americans with Disabilities Act of 1990, UCLA Extension provides appropriate accommodations and support services to qualified applicants and students with disabilities. These include, but are not limited to, auxiliary aids/services such as sign language interpreters, assistive listening devices for hearing-impaired individuals, extended time for and proctoring of exams, and registration assistance. Accommodations and types of support services vary and are specifically designed to meet the disability-related needs of each student based on current, verifiable medical documentation. Arrangements for auxiliary aids/services are available only through UCLA Extension’s Service for Students with Disabilities Office at (310) 825-7851 or by email at [email protected]. For complete information see: https://www.uclaextension.edu/pages/str/studentswithDisabilities.jsp

Incompletes

Your instructor may post the interim grade Incomplete/I if at the end of the class your overall work is of passing quality but a portion could not be submitted for understandable reasons (e.g. illness). It is your responsibility to petition your instructor for permission to submit work late and to provide an explanation, and it is his or her sole decision whether to accept the explanation. If permitted, the Incomplete/I grade will be posted and a time frame defined for you to submit the missing work, ranging from one to twelve weeks. Incomplete/I grades that remain unchanged after twelve weeks will lapse to F, NP or U. Receiving an I grade entitles you to submit only the missing work your instructor has agreed to accept late, and does not allow other work to be retaken or oblige UCLA Extension to provide continuing access to course materials via Canvas. The Incomplete/I grade is not an option for courses that do not bear credit, such as 700, 800, or 900-level courses. For complete information, see: https://www.uclaextension.edu/pages/str/grading.jsp

All Grades are Final

No change of grade may be made by anyone other than the instructor, and then, only to correct clerical errors. No term grade except Incomplete may be revised by re-examination. The correction of a clerical error may be authorized only by the instructor of record communicating directly with personnel of Student and Alumni Services.

Sexual Harassment

The University of California is committed to creating and maintaining a community where all individuals who participate in University programs and activities can work and learn together in an atmosphere free of harassment, exploitation, or intimidation. Every member of the community should be aware that the University prohibits sexual harassment and sexual violence, and that such behavior violates both law and University policy. The University will respond promptly and effectively to reports of sexual harassment and sexual violence, and will take appropriate action to prevent, to correct, and when necessary, to discipline behavior that violates our policy.

All Extension students and instructors who believe they have been sexually harassed are encouraged to contact the Department of Student and Alumni Services for complaint resolution: UCLA Extension, 1145 Gayley Ave., Los Angeles, CA 90024; Voice/TTY: (310) 825-7031. View the University’s full Policy on Sexual Harassment and Sexual Violence at http://policy.ucop.edu/doc/4000385/SHSV.

Additional Items

Protecting Privacy and Data During Live Instruction

Live meeting sessions for this class, when applicable, are being conducted over Zoom. As the host, the instructor may be recording live sessions. Only the host has the ability to record meetings, no recording by other means is permitted. Recorded sessions will be posted in the Videos area of this class unless otherwise notified. Due to privacy, recordings are not available for download and are only accessible via Canvas for the duration of the class. If you have privacy concerns and do not wish to appear in the recording, do not turn on your video and/or audio. If you also prefer to use a pseudonym instead of your name, please let the instructor know what name you will be using so that the instructor knows who you are during the session. To rename yourself during a Zoom meeting, click on Participants, click on your name, click on More, click on Rename. If you would like to ask a question, you may do so privately through the Zoom chat by addressing your chat question to the instructor only (and not to ""everyone""). Additionally, chat may be used and moderated for live questions, and saving of chats is enabled. If you have questions or concerns about this, please contact the instructor via Canvas Inbox.

Pursuant to the terms of the agreement between Zoom and UCLA Extension, the data is used solely for this purpose and Zoom is prohibited from re-disclosing this information. UCLA Extension also does not use the data for any other purpose. Recordings will be deleted when no longer necessary. However, recordings may become part of an administrative disciplinary record if misconduct occurs during a video conference.

Course and Instructor Evaluation

UCLA Extension values your feedback on course and instructor evaluations. We ask all students to take a few minutes to complete an end-of-course evaluation survey. Updates to the course and instruction are influenced by your feedback. Understanding your student experience is essential to ensure continuing excellence in the online classroom and is appreciated by your instructor and the UCLA Extension academic leadership.

Your participation in a survey is voluntary, and your responses are confidential. After instructors submit grades, they will be given an evaluation report, but this report will not contain your name.

About Your Online Course Materials

Please note the following about online course components at UCLA Extension:

  • Students must have basic computer skills, including the use of word processing software, email, and the ability to use internet browsers, such as Safari, Firefox, or Chrome.
  • Students are responsible for meeting the technical requirements of Canvas and familiarizing themselves with the Canvas Learning Management System.
  • Students are responsible for keeping a copy of all assignments and work submitted, and to be aware of all assignments, due dates, and course guidelines.
  • Students are encouraged to keep and/or download a local copy of their assignment files, as access to the online environment of a specific course is limited to 30 days after the final course date, as listed in the course catalog.

    To download all your assignment submissions in Canvas, please refer to the online support guide. for more information or contact Canvas Support via the help menu within Canvas.

UCLA Extension Canvas and Learning Support

For immediate 24/7 Canvas technical support, including holidays, click on Help (located on the menu to the left) where you can call or chat live with a Canvas Support representative.

UCLA Extension Instructional Design and Learning Support
The UCLA Extension Learning Support staff assists both students and instructors with Canvas-related technical support, as well as general and administrative questions.

Learning Support staff is available Monday through Friday, from 8 AM to 5 PM (Pacific Time), except holidays:

Campus Safety Escorts

For students taking classes held on the UCLA campus and in and around Westwood Village, the UCLA Police Department provides a free walking escort service every day of the year from dusk until 1 a.m. Community Service Officers (CSOs) are available to walk students, faculty, staff members and visitors to and from anywhere on campus, in Westwood Village, and in the village apartments. CSOs are uniformed students who have received special training and are employed by the UCLA Police Department. To obtain an escort, please call (310) 794-9255 and allow 15 to 20 minutes for your escort to arrive. For complete information, see: https://www.ucpd.ucla.edu/services/community-service-officers-csos/evening-escorts

Schedule

Course calendar and related activities
When Module Title Notes
Week 1
Reviewing stocks, definition of options, types of stock options, elements that make up options

McMillan on Options, 2nd Edition ("MO2"): Read pp 1 - 24; 42 - 44

- for eReaders, pages 1 to 24 correspond to Chapter 1, from the beginning and stopping just before the section on Futures and Future Options; and pages 42 to 44 correspond to the end of Chapter 1, in the section titled Technical Analysis

Options Strategic Investment, 5th Edition ("OSI5"): Read pp 3 - 29

Week 2
Buying of Calls & Puts

MO2: Read pp 47 - 57; pages 155 - 157

- for eReaders, pages 47 to 57 correspond to Chapter 2, from the beginning and stopping just before the section on Selling Options; and pages 155 to 157 correspond to Chapter 3, reading a section titled Expiration's Effect on Individual Stocks

OSI5: Read pp 85 - 101, 241 - 259, page 447 - 452

Week 3
Selling Calls & Puts

MO2: Read pp 12 - 19; 57 - 69

- for eReaders, pages 12 to 19 can be found in Chapter 1, a section called "Option Trading Procedures", and ending just before the section on the "Mechanics of Exercise and Assignment"; pages 57 to 69 are in Chapter 2, in the sections titled "Buying Both a Put AND a Call" and "Selling Options" ending just before you get to "Naked Call Writing"

OSI5: Read pp 33 - 59, 123 - 134, 278 - 286

Week 4
Intro to Straddles and Review of Fundamental Option Strategies

MO2: Read pp 69 - 77 and all prior page assignments

- for eReaders, pages 69 to 77 correspond to Chapter 2, starting at "Naked Call Writing" and stopping just before getting into "Spreads"

OSI5: Read pp 288 - 304, 683 - 703, 722

Week 5
Straddles & Strangles, Margin Requirements, How to place a trade - Quiz #1 will be delivered electronically

MO2: Read pp 77 - 85; 569 - 592

for eReaders: read Chapter 2, the section on "Vertical Spreads", and then Chapter 7 on Other Important Considerations, starting from the beginning and stopping before getting into "Speculative Trading Procedures"

OSI5: Read pp 157 - 177, 316 - 320, 723 - 733

Week 6
Introduction to Spreads

MO2: Read pp 85 - 90

- for eReaders, this is the section on "Calendar Spreads" in Chapter 2

OSI5: Read pp 178 - 186, 734 - 735

Week 7
Index Option; Greeks; Trading volatility

MO2: Read pp 262 - 277; 442 to 498

OSI5: Read pp 307 - 320; 485 - 512; 723 - 735

Week 8
Quiz #2 will be delivered electronically; Calendar, Diagonal spreads and Condor Spreads

MO2: Read pp 85 - 99

OSI5: Read pp 223 - 228; 323 - 346

Week 9
Condor & Butterfly Spread; Ratio and Ratio Back Spreads

MO2: Read pp 91 - 102

OSI5: Read pp 197 - 215; 348 - 358

Week 10
Fundamental Analysis vs. Technical Analysis; Weekly Options

MO2: Read pp 42 - 44; 177 - 184; 230; 334; 425 - 439; 

OSI5: Read pp 683 - 738

Week 11
Final Exam

Open notes; open book