W.A. Beagles graduated in economics in 1984, before starting his City career with Lloyds Bank as an FX trader and going on to help establish the bank's presence on the LIFFE trading floor. In 1986, Bill joined AOT, a specialist option trading firm, for whom he traded a range of option products on LIFFE and LTOM in London, the MATIF in Paris, the EOE in Amsterdam and the electronic DTB (fore-runner of Eurex) in Germany. Following in the footsteps of many successful traders before him, Bill "went local" in 1994, making markets in the FTSE 100 Index option on LIFFE. When the open outcry trading floor closed in 2000, Bill had the honour of ringing the closing bell for the final time.

Joining up with Simon Hart and Andy Swaine, two long term friends and fellow traders, Bill then set up K2 London, a trading company that combines day-to-day derivatives trading with fund management, education and consultancy. Since 2000, Bill has provided specialised education and consulting services to a wide range of institutions including LIFFE and the LSE in London and to a range of government agencies and major companies across the globe.

Bill's combination of current market knowledge and educational experience allows him to present the complex subject of options in a clear and intuitive fashion.

Foreword vii

Preface: Trading Language and Products ix

1 Option Basics 1

2 Option Specifications 9

3 Exercise and Assignment 13

4 Option Uses 19

5 Option Price and Value 31

6 "Moneyness" 39

7 Pricing Options 43

8 Skew 61

9 Option Pricing Revisited: the "Greeks" 71

10 Basic Option Strategy 95

11 Option Spreads 105

12 The Collar (Fence) 107

13 Long Call Spreads (Bull Call Spreads) 119

14 Long Put Spreads (Bear Put Spreads) 127

15 Short Call Spreads (Bear Call Spreads) 139

16 Short Put Spreads (Bull Put Spreads) 147

17 Selling Naked Puts versus Selling Put Spreads 151

18 Long Verticals versus Short Verticals 157

19 Long Straddles 161

20 Long Strangles 167

21 Short Straddles 173

22 The Iron Butterfly 179

23 Short Strangles 185

24 The Iron Condor 187

25 Calendar Spreads 193

26 Long Call Calendars 195

27 Short Call Calendar Spreads 201

28 Long Put Calendar Spreads 205

29 Short Put Calendar Spreads 209

30 Diagonal Spreads 213

31 Yield Enhancement 219

32 Gamma Trading 223

33 Resources 233

34 Summary 235

Glossary 237

Index 247