How To Make Money With Stock Options

As a consequence, this book is not thorough in its discussions of the principles of options. It is written primarily for people who either know a little something about options, or a lot about stocks.

Part one summarizes option history, principles and risks. Part two is a compilation and discussion of basic option strategies. Parts three through five describe some of the more common complex option strategies, including those that should be classified as “conservative.” Parts VI and VII concern tax considerations and practical applications and common sense for lawyers and brokers. In each part I try to identify what the risk is, and why.

In this way, I hope to play a small part in clearing up the widespread misunderstanding of the relationship between risk and option trading.

A. The Differences between Options and Stocks

Owning a stock is not the same as owning a house. When you own a house you can live in it, you can fix it up, and you can see it every day. Many people think that the same is true when they hold a stock certificate in their hand. They can see it and feel it, it has an attractive gold or green border, and it is made of fine quality paper. (See Figure I-1.)

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