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For most professional options traders, using just a few option strategies over and over again will suffice.  It’s just not really necessary to understand the hundreds of possible option strategies and spreads to be successful.  But for those that want to study all the combinations, The Bible of Options Strategies is a book worth picking up.

The nice thing about this book is the consistency.  Every strategy is attacked with the same explanation headings, including:

• A description of the stragegy, and a risk profile graph
• The exact steps to entering and exiting the option strategy
• Context information on outlook, rationale, time decay effects, time period selection, and stock and option selection
• Risk profile and information on the greeks (delta, gamma, theta, vega and rho)
• Loss mitigation and adjustment information
• Example trade

From the Bible:

The Diagonal Call is a variation of a Covered Call where you substitute the long stock with a long-term deep in the money long call option instead.  This has the effect of reducing the investment, thereby increasing the yield…

Let’s say we’re looking to do a Diagonal Call on a $25.00 stock.  The two-year $20.00 call is say, $7.50, and we’ll sell next month’s $27.50 call for $.75, giving us an initial cash yield of 10%.  If the share rises to $40.00, within the next month, our long call will be worth at least $22.00 ($20.00 intrinsic value alone).  We’ll have to buy the stock for $40.00 and sell it at $20.00 (making a $20.00 loss), but we’ll retain the $.75 from selling the short-term OTM option.  Total position is still profitable by around $2.75…

Because we’re buying deep ITM calls, the long option will have a higher delta and will move more in step (dollar for dollar) with the stock as it rises.  This means that the stock rising explosively won’t damage our position, unlike with the Calendar Call.

To purchase the book for yourself, just click the book below:

The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies by Guy Cohen