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Options Playbook Series, Part 9: More Option Strategies for Rookies

Member FINRA & SIPC

Disclaimers ƒ Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at (877)495-KING, visiting www.tradeking.com/ODD or by using the file transfer window on your screen. ƒ Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as a recommendation, or solicitation to buy or sell securities. ƒ All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. ƒ Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs. ƒ The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that these forecasts will be correct. Speaker: Brian Overby

http://webinars.tradeking.com

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Disclaimers ƒ Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. ƒ Webinars are provided for educational and informational purposes only. ƒ TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. ƒ The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. ƒ TradeKing is a member of FINRA and SIPC.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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No monthly fees No minimum activity fees No minimum balance requirement

Member FINRA & SIPC

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TradeKing’s Trader Network http://community.tradeking.com

twitter.com/TradeKing

Member FINRA & SIPC

Options Playbook Series, Part 9: More Option Strategies for Rookies

Member FINRA & SIPC

3


Options Playbook Series, Part 9: More Option Strategies for Rookies

Review of Part 1

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Terms & Conditions of an Option Contract Options are contracts: ƒ Giving the owner the right to buy or sell an asset at a fixed price for a specific period of time and obligating the seller to take the opposite side if and when the right embedded in the option contract is exercised by the owner. ƒ Long - When you’re talking about options and stocks, “long” implies a position of ownership. After you have purchased an option or a stock, you are considered "long" that security in your account. ƒ Short - If you’ve sold an option or a stock without actually owning it, you are then considered to be “short” that security in your account. That’s one of the interesting things about options. You can sell something you don’t actually own. But when you do, you may be obligated to do something at a later date. Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Four Basic Positions

Buyer (long) Seller (short)

CALL

PUT

Right to buy

Right to sell

Obligation to sell

Obligation to buy

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Intrinsic & Time Value Intrinsic Value — The amount an option is in-the-money. For call options, this means the stock price is above the strike price. So if a call has a strike price of $50 and the stock is trading at $55, that option is in-the-money and has intrinsic value. For put options, it means the stock price is below the strike price. So if a put has a strike price of $50 and the stock is trading at $45, that option is in-the-money and has intrinsic value. Time Value — The part of an option’s price that is based on its time to expiration. If you subtract the amount of intrinsic value from an option price, you’re left with the time value. If an option has no intrinsic value (i.e., it’s out-of-the-money) its entire worth is based on time value. Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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ATM Option Time Decay Stock = 100

60-Day (Sep) 100 Call @ 3.50 30-Day (Aug) 100 Call @ 2.50

Option Premium

4

3

2

1

0

Exp. of Aug.

Exp. of Sep.

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Exercise & Assignment Defined Exercise: ƒ to invoke the right contained in an option contract ƒ you make happen Assignment: ƒ to be required to fulfill the obligation ƒ happens to you

Someone must exercise before someone can be assigned Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

12

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Options Playbook Series, Part 9: More Option Strategies for Rookies

Protective Puts

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Four Basic Positions

Buyer (long) Seller (short)

CALL

PUT

Right to buy

Right to sell

Obligation to sell

Obligation to buy

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Protective Put (Married Put) ƒ Buy 100 XYZ Shares @ (65.00) ƒ Buy 1 XYZ 46-Day 62.50 Put @ (1.50) Net Debit (66.50) ƒ Until expiration (46 Days) – Risk? Stock 65.00 Strike Deductible

Commission $10.55

Deductible 2.50 Prem + 1.50 at risk 4.00 6%

- 62.50 2.50

– If XYZ is above 65.00 at expiration - Long 100 XYZ at a Cost Basis of 66.50 (lose premium)

- Break-even 66.50 – below 66.50 losses will occur Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

15

Protective Put - P&L Graph 15

Buy 100 XYZ Shares @ (65.00) Buy 1 XYZ 46-Day 62.50 Put @ (1.50)

10 5 Profit & Loss

Long Stock @ 65

0 57.5

62.5

67.5

72.5

77.5

82.5

-5 -10

Protective Put @.66.50

-15

Stock Price at Expiration

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Things to Think About ƒ How do I enter this trade – can it be done as one trade? ƒ Can I buy the stock first and then buy the put later? ƒ Your are in control because you are the buyer. You may choose to exercise or just sell the put to close. ƒ The more volatile the stock the more expensive the puts will be. ƒ The more expensive the stock the more expensive the puts will be. ƒ Which expiration for the put?

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

17

Buying LEAPS vs Short Term Puts ƒ XYZ 46-Day 62.50 Put @ 1.50 – Premium = 1.50 • 2.3% – Risk = 1.50 + 2.50 = 4.00 • 6.1% ƒ XYZ 292-Day 62.50 Put @ 4.60 – Premium = 4.60 • 7.0% – Risk = 4.60 + 2.50 = 7.10 • 10.9% Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

18

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Options Playbook Series, Part 9: More Option Strategies for Rookies

Collars

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Four Basic Positions

Buyer (long) Seller (short)

CALL

PUT

Right to buy

Right to sell

Obligation to sell

Obligation to buy

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

20

10


Options Playbook Series, Part 9: More Option Strategies for Rookies

Covered Call Review

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

21

Covered Call - P & L Graph 15 10

Buy 100 XYZ Shares @ (65.00) Sell 1 XYZ 292-Day 72.50 Call @ 4.40

Covered Call @ 60.60

5 Profit & Loss

0 57.5

62.5

67.5

72.5

77.5

82.5

-5

Long Stock @ 65 -10 -15

Stock Price at Expiration

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

22

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Options Playbook Series, Part 9: More Option Strategies for Rookies

Collar Example

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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LEAPS Collar ƒ Buy 100 XYZ Shares @ (65.00) ƒ Buy 1 XYZ 292-Day 62.50 Put @ (4.60) ƒ Sell 1 XYZ 292-Day 72.50 Call @ 4.40 Net Debit (65.20) .

.20 Debit Commission $16.15

ƒ At expiration (292 Days) – Risk • 65 – 62.5 = 2.50 + .20 = 2.70 or 4.1% – Upside • 72.50 – 65 = 7.50 – .20 = 7.30 or 11.2%

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

24

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Collar - Profit & Loss Graph 15

Buy 100 XYZ Shares @ (65.00) Buy 1 XYZ 292-Day 62.50 Put @ (4.60) Sell 1 XYZ 292-Day 72.50 Call @ 4.40

10 Cov ered Call Stock @ 65 Protectiv e Put

5 Profit & Loss

0 57.5

62.5

67.5

72.5

77.5

82.5

-5 -10 -15

Stock Price at Expiration

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

25

Collar - Profit & Loss Graph

15

Buy 100 XYZ Shares @ (65.00) Buy 1 XYZ 292-Day 62.50 Put @ (4.60) Sell 1 XYZ 292-Day 72.50 Call @ 4.40

10 5 Profit & Loss

Long Stock @ 65

0 57.5

62.5

-5

67.5

72.5

77.5

82.5

Collar @ 65.20

-10 -15

Stock Price at Expiration

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

26

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Things to Think About ƒ Can it be done as one trade (buy stock, sell call, buy put)? ƒ Can I buy the stock first and then put the collar on later (sell call and buy put in one trade later)? ƒ What is the risk in this trade? ƒ You can choose to exercise or just sell the collar. ƒ The more volatile the stock the more expensive the puts and calls will be.

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax advisor. Any strategies discussed and examples using actual securities and price data do not imply a recommendation to buy or sell and are for educational purposes ONLY! Options involve risks and are not suitable for all investors. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.

Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

27

Phone Numbers: (877) 495-KING

E-mails: webinars@tradeking.com theoptionsguy@tradeking.com Brian’s Blog: “The Options Guy” http://optionsguy.tradeking.com TradeKing’s Trader Network: http://community.tradeking.com

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Twitter: Twitter.com/TradeKing

OptionsPlaybook.com Today! Speaker: Brian Overby

http://webinars.tradeking.com

Audio trouble? 866-569-3239

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Open for Questions

Member FINRA & SIPC

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Options strategies for rookies, part 2 (opb 9)