Über die Autorin bzw. den Autor

George A. Fontanills (Miami, FL), who received his MBA from the prestigious Harvard Business School, is the cofounder and President Emeritus of Optionetics, the world leader in options education, with offices around the globe specializing in teaching high-profit, low-risk, low-stress options trading strategies (www.optionetics.com). Additionally, George's reputation as "the dean of options trading" has led to numerous guest appearances on television and radio shows across the country. A retired hedge fund manager, he has written and cowritten many books on trading, including The Options Course, The Stock Market Course, and The Volatility Course, all published by Wiley. He is also author of the forthcoming Trading Options for Dummies.

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Praise for trade options online

SECOND EDITION

"The sophistication of online options trading platforms has continued to grow and modern traders have unparalleled tools at their disposal. However, without knowing how to use these tools, they are useless. George's book is the perfect complement for anyone trading options online. All key strategies are covered in concise detail and explained with good examples. This is an excellent reference to support online options trading."
John-Paul Drysdale, CEO, Hubb, www.hubb.com

"As cofounder and President of Optionetics, as well as a seasoned options trader with a successful pedigree, George Fontanills continues his leadership in successful options trading with this new edition. George provides step-by-step coverage of proven managed risk option trading strategies against a backdrop of fundamental and technical methods. This is a must-read for anyone serious about options trading."
Laurence J. Pino, Esq., Chairman and CEO, Dynetech, Inc.

"George Fontanills has continued to do what he has done for years: educate people in the ways to use options to improve their investing performance with an eye on managing risk. He speaks of things that all traders should learn: setting up replicable systems, limiting downside risk and maximizing upside rewards, and generating consistent returns over long periods of time. Online options trading has become sophisticated enough to really narrow the gap between retail and institutional execution capabilities."
George Ruhana, CEO, OptionsHouse, LLC

"If you trade options, want to trade options, or even think you want to trade options, this is a 'must' book to have. You will read and re-read it, each time learning something new. George Fontanills is the master options teacher."
Ned W. Bennett, CEO and Cofounder, optionsXpress, Inc.

Aus dem Klappentext

Since the first edition of Trade Options Online was published nearly eight years ago, much has changed in this fast-moving field. The ease of electronic trading combined with a variety of new productsincluding new indexes and ways to trade volatilityhas spurred the ongoing growth of the options market and created profitable new opportunities in the process.

As advances in technology allow online options traders to become more independent, understanding the intricacies of this marketplace and making good trading decisions have become more important than ever. That's why options trading innovator George Fontanills has written a fully revised and updated second edition of his best-selling book.

Filled with in-depth insights and practical advice, this accessible guide provides you with a working knowledge of essential options strategies and the computer savvy to enhance your online trading endeavors. While the first few chapters outline the basics of online options trading, this book quickly moves on to address how you can integrate proven options-based trading techniques into a comprehensive plan that fits your personal preferences.

Fontanills details various managed-risk option strategiesfrom vertical spreads to ratio backspreadsthat are designed to take advantage of everyday market opportunities, and walks you through a series of hypothetical trades that demonstrate how to compute the maximum risk, maximum profit, breakevens, and exit alternatives for each strategy. Along the way, Fontanills also takes the time to discuss other essential elements of this discipline, including trading futures options, streamlining your trading approach, and mastering the inner workings of the order process, to name a few.

In addition to this information, several appendices offer guidance that will help you maintain a competitive online edge, including a short list of options trading software; reviews of more than 200 financial resource sites broken down by specific categories; surveys of online brokerages as they compare to one another in services, commissions, and resources; and much more.

While it's rewarding to build wealth from the comfort of your computer, it takes time to learn how financial markets function as well as develop effective trading strategies to operate within them. The Second Edition of Trade Options Online will show you how to do this, and much more, whether you're looking to boost returns by using leverage or protect your investments by hedging.

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Trade Options Online

John Wiley & Sons

Chapter One

trading options today

The Internet has gone from an abstract concept to a global information network with endless applications in everyday life. By 2007, more than 160 million adults (age 18 or older) in the United States were surfing the Net. Almost 75 percent of U.S. households now have Internet access. Odds are you are connected. In fact, there is a good chance that you bought this book online.

People use the Internet in different ways. The rise of online media is giving television a run for its money. People are no longer satisfied digesting spoon-fed TV news or programs. They want to download their own podcasts, you-tubes, music videos, and movies. People want greater control of the content they digest into their systems. In many cases, they have even become broadcasters of their own media.

In addition, e-commerce is altering the way people spend their hard-earned dollars. As this immense shift in control takes place, the nature of the human adventure evolves and entire new industries are booming. Bookstores are trying harder to lure in customers to compete with Amazon.com, car salesmen often look over empty lots because sales are taking place on autotrader.com, and there are very few lines waiting for bank tellers as online banking has transformed the way people handle their finances.

The success of the Internet has also created a maelstrom in the investment world. Conventional brokers, the traditional intermediaries of an investor's game plan, are losing ground as more than seven million investors move to online brokers instead. Reduced commissions and lightning-fast information access have enabled online trading enterprises to redefine the role of a broker.

With a keystroke, traders can access real-time quotes, annual reports, breaking financial news, technical and fundamental analytical data, and investing tips from a multitude of insightful (and not so insightful) market analysts. In seconds you can find out which stocks are hitting new highs or new lows or review an option's volatility. It has become possible to look over charts and graphs, and then, with the click of a mouse, enter an order to buy or sell that stock or option.

Meanwhile, news sites compete for readers by offering daily market analyses, economic reports, and shrewd investment commentary. Market research firms maximize the investment community's ability to track ever-changing fundamentals and technical indicators. Even exchanges offer a variety of free services geared to educate and inform the Net-surfing masses.

In fact, there is so much information available on the Internet that it can be overwhelming. There's just too much to be able to digest it all. The key is to develop a comprehensive game plan that enables you to systematically trade to win. This involves more than just marking your favorites in your Web browser; you have to learn to filter out all the noise and useless information that won't help you make a dime. This book, especially this chapter and the two that follow, is designed to help you cut through the information clutter by highlighting the most important and useful online sources of options-related information.

the exchanges Options trading volume continues to set records year after year. In 2007, six different U.S. exchanges listed put and call options. According to the Options Clearing Corporation (OCC), a total of 2.9 billion contracts traded hands that year, which represents a 45 percent increase over the roughly 2.0 billion contracts that traded in 2006.

How do traders use options? In a variety of ways. A call option can be used to participate in a move higher in a stock. An investor can buy a put option to bet on a decline in a stock price. For example, an investor who bought put options (which give the right to sell a stock) on Intel on December 31, 2007, would have seen the value of the put option more than triple when the stock fell 18 percent over the next few weeks. During that same time, Citigroup fell 3 percent, and put options on its stock rose 32 percent.

So options can be used to profit from price changes in a stock, whether higher or lower. Puts and calls can also be used to profit from price changes in a variety of other assets, known as underlying securities, including gold, oil, bonds, the stock market, and specific sectors. Furthermore, there are a variety of more advanced strategies (covered later in this book) that can generate profits if the underlying asset moves higher, lower, or sideways.

The versatility of options explains why the options market has become one of the fastest-growing areas of finance today. The seven exchanges that offer options trading-the American Stock Exchange (AMEX), the Chicago Board Options Exchange (CBOE), the International Securities Exchange (ISE), the Boston Options Exchange (BOX), the New York Stock Exchange Arca (NYSE), the NASDAQ, and the Philadelphia Stock Exchange (PHLX)-continue to see steady order flows and strong business. Table 1.1 breaks down the total volume by exchange on a typical trading day in 2008.

In fact, the ISE, which was the first all-electronic options exchange, was acquired by Eurex, a European exchange, in 2007. The year before, the New York Stock Exchange (NYSE) bought out Archipelago and, in the process, acquired the options trading business of the Pacific Stock Exchange, which is now known as NYSE Arca. More recently, the NASDAQ Stock Market launched its own options market and became the seventh exchange to list puts and calls. The all electronic exchange received SEC approval on March 12, 2008, and started trading options shortly thereafter. Like the six others, the NASDAQ options market offers trading in equity, ETF, and index options. In addition, the exchanges are becoming more efficient with the help of technology. Options trading has never been easier or more popular among individual investors. It is a strong trend that is showing no signs of slowing.

At the same time, while the exchanges have been growing, they are also competing for investor attention and order flow. Consequently, the exchanges have become important sources of information regarding industry trends. For example, a visit to the CBOE web site provides a plethora of useful options-trading information, much of it free. This includes not only product specifications but also quotes, research, and historical data. The AMEX, NASDAQ, ISE, and PHLX also provide useful information on their respective web sites, listed below and in Table 1.1 for your convenience:

American Stock Exchange, Inc. 86 Trinity Place New York, New York 10006 (212) 306-1452 www.amex.com

Boston Options Exchange (866) 768-8845 www.bostonoptions.com Chicago Board Options Exchange, Inc. 400 LaSalle Street Chicago, IL 60605 (312) 786-7705 www.cboe.com

International Securities Exchange 60 Broad Street New York, NY 10004 (212) 943-2400 www.iseoptions.com

NASDAQ Stock Market One Liberty Plaza 165 Broadway New York, NY 10006 (212) 401-8700 www.nasdaq.com

NYSE Arca (Formerly Pacific Stock Exchange) 301 Pine Street San Francisco, CA 94104 (415) 393-4000 www.nyse.com

Philadelphia Stock Exchange, Inc. 1900 Market Street Philadelphia, PA 19103 (215) 496-5000 www.phlx.com

reality check for online traders

These days, most option...