383036: Managing and Understanding Stock Option Strategies
- Fall 2021
- Section 1
- 4 Credits
- 09/21/2021 to 11/30/2021
- Modified 09/02/2021
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.
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.
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
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)
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,
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.
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.
Two 60 minute quizzes will be administered throughout the course
Final Exam will be open book and use of calculators will be permitted
Letter grades will be based on a curve.
- A: 90 - 100
- B: 80 - 89
- C: 70 - 79
- F: Below 70
- 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
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||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
||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
||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
||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
||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
||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
||Index Option; Greeks; Trading volatility||
MO2: Read pp 262 - 277; 442 to 498
OSI5: Read pp 307 - 320; 485 - 512; 723 - 735
||Quiz #2 will be delivered electronically; Calendar, Diagonal spreads and Condor Spreads||
MO2: Read pp 85 - 99
OSI5: Read pp 223 - 228; 323 - 346
||Condor & Butterfly Spread; Ratio and Ratio Back Spreads||
MO2: Read pp 91 - 102
OSI5: Read pp 197 - 215; 348 - 358
||Fundamental Analysis vs. Technical Analysis; Weekly Options||
MO2: Read pp 42 - 44; 177 - 184; 230; 334; 425 - 439;
OSI5: Read pp 683 - 738
Open notes; open book