Options Education for Individual Investors

Book Reviews: Two New Books On Options (2003)

[BRIEFING.COM - Robert V. Green] Two new books on options are out - one by an established, well known name in options, selling his book through established channels, and one by a experienced options traders selling through an innovative internet channel. Both books have merit, but for different audiences.

The first book is:

Profit With Options
Lawrence G. McMillan
John Wiley & Sons
Hardcover, 278 pages

The second book is:

The Short Book On Options: A Conservative Strategy for the Buy and Hold Investor

A Conservative Strategy for the Buy and Hold Investor
Mark D. Wolfinger
1st Books Library (
Softcover, $13.95

Profit With Options

Lawrence McMillan ( is probably the best known author on options. His prior books, McMillan On Options and Options As A Strategic Investment, have all sold well and been well received. He is also the publisher of a newsletter called The Option Strategist.

With this new book, Mr. McMillan offers both some basic educational material on options, but focuses on trading strategies. If you want to trade options, and start from the beginning, this book is a good place to start. However, you should probably already be fairly familiar with options before diving into the strategies in this book.

The first chapter is a fast overview of options: the terms and basic concepts. The Black-Scholes model is covered in three paragraphs. Although the material is presented fairly easily and clearly, it should not be considered a beginners guide. The introduction is more of a "let's define terms" chapter than a true introduction to options.

However, after Chapter 1, Mr. McMillan dives into sophisticated ideas for options traders, many of which may be thought-provoking for even the most experienced options trader .

Some of the more detailed approaches include:

None of these topics are really for beginners. Playing volatility, for example, involves first determining if an option's price distribution represents a forward or negative skew on the standard distribution bell curve of pricing. The approach to take in a trade depends on your assessment of whether an options implied volatility falls within or outside the skew on a lognormal distribution. When you make this determination, you can buy one call at a certain price and offset it with the sale of another option at a different price, but with the same expiration date. As the options approach maturity, the spread in their implied volatility will narrow, and you capture the difference as profit.

This sophisticated arbitrage approach, just one of several in this book, is certainly not for everyone. But if you have experience with options, and are looking for new techniques, you might find it worthwhile to check out.

One of the nice features of this book, however, is the "review questions" at the end of each chapter. You can "test yourself" at the end of each chapter with 10 multiple choice questions. Grade yourself at the back of the book, along with a brief description of the right answer.

After all, it is "back to school" time.

The Short Book On Options

Mark Wolfinger ( is an experienced options trader, having been a market maker in options on the floor and an active trader for a trading company. His experience as a trainer of new options traders led him to develop some of the material in his book.

Mr. Wolfinger's book approaches options from the opposite direction as Mr. McMillan. Instead of a set of new sophisticated approaches to options, "The Short Book On Options" focuses on very simple, more conservative approaches to options.

Mr. Wolfinger also starts his book with an introduction to option. If we fault MR. McMillan for passing over basic concepts too quickly, we felt Mr. Wolfinger might spend a little too much time on the basics, using a metaphor of buying a puppy to that of buying options. But it might be appropriate for someone truly starting from scratch.

The real value of "The Short Book On Options," though are the discussions on how to use options for non-trading purposes. The best of these include:

Writing covered calls is not a new idea, of course. At, we have written numerous times about how to do this. However, Mr. Wolfinger's explanation is both detailed and comprehensive. If you want to thoroughly consider the how-to and whys of selling covered calls, this book is a good approach. In fact, it is the principal idea presented in the book.

The more innovative idea in Mr. Wolfinger, in our opinion, is that of using an option to sell at a higher price. Although covered in far less depth than the "selling-calls-for-income" approach, the idea is quite useful. Essentially a psychological approach, it advocates selling a covered call to achieve a predetermined target price for a stock. When the current premium plus the strike price equals your target price, selling the covered call essentially ensures you of selling the stock for your target price, with no risk. If the stock falls, you pocket the call premium.

The same type of thinking can be used to purchase a stock for less than the currently trading price.

Mr. Wolfinger's book probably should not be looked at as a single, learn-it-all-at-once book for beginners, but it is not a bad place to start, particularly if you want to approach options conservatively.

Comments may be emailed to the author, Robert V. Green, at

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