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Options Trading
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The following are useful introductions to trading options:

- `Options Basics Tutorial`_
- `Introduction To Put Writing`_
- `Options Trading Basics`_
- `The Options Guide`_
- `Debunking myths about ETF liquidity`_
- `Nine Questions Every ETF Investor Should Ask Before Investing`_
- `The Role and Activities of Authorized Participants of Exchange-Traded Funds`_
- `ETFs - How Much Do They Really Cost`_?
- `Understanding Exchange-Traded Funds - How ETFs Work`_
- `Prefer ETFs to ETNs`_
- `School of Pipsology`_
- `OIC`_

.. _Options Basics Tutorial: http://www.investopedia.com/university/options
.. _Introduction To Put Writing: http://www.investopedia.com/articles/optioninvestor/02/030102.asp
.. _Options Trading Basics: http://investorplace.com/how-to-trade-options-options-trading-basics
.. _The Options Guide: http://www.theoptionsguide.com/stock-option.aspx
.. _Debunking myths about ETF liquidity: https://am.jpmorgan.com/blob-gim/1383272223898/83456/1323416812894_Debunking-myths-about-ETF-liquidity.pdf
.. _Nine Questions Every ETF Investor Should Ask Before Investing: http://www.understandetfs.org/nine_questions.html
.. _The Role and Activities of Authorized Participants of Exchange-Traded Funds: https://www.ici.org/pdf/ppr_15_aps_etfs.pdf
.. _ETFs - How Much Do They Really Cost: http://www.schwab.com/public/schwab/nn/articles/ETFs-How-Much-Do-They-Really-Cost
.. _Understanding Exchange-Traded Funds - How ETFs Work: https://www.ici.org/pdf/per20-05.pdf
.. _Prefer ETFs to ETNs: https://www.schwab.com/active-trader/insights/content/exchange-traded-notes-the-facts-and-the-risks
.. _School of Pipsology: http://www.babypips.com/school
.. _OIC: http://www.optionseducation.org/en.html

`Buying and selling options`_ is a safe way to
`earn a steady income of premiums`_.  However, the weekly gain is
`approximately 2% - 5%`_ of the amount invested.  A high-risk high-reward
strategy is `trading naked options`_, but it could be
`very risky depending on the situation`_.

.. _Buying and selling options: http://mytradersjournal.com/stock-options/2007/09/27/beginners-guide-how-to-read-an-options-table
.. _earn a steady income of premiums: http://www.investmentu.com/article/detail/29104/naked-put-options
.. _approximately 2% - 5%: http://www.investmenthunting.com/options-trading-a-beginners-perspective
.. _trading naked options: http://mytradersjournal.com/stock-options/2007/09/05/write-options-sell-naked-puts-part-1
.. _very risky depending on the situation: http://mytradersjournal.com/stock-options/2007/09/05/write-options-sell-naked-puts-part-2

`Daily options trading`_ is another strategy to increase the gains for the same
amount of investments.  There are many indicators, but the ones I find easy to
understand and use are

- `Heikin-Ashi`_,
- `Ichimoku Kinko Hyo`_,
- Moving Average Convergence/Divergence Oscillator (`MACD`_),
- Money Flow Index (`MFI`_),
- `Multiple Time Frames`_,
- Volatility Index (`VIX`_), and
- Time and Sales Window (`Tape Reading`_).

.. _Daily options trading: http://seekingalpha.com/article/304428-a-daily-options-trading-strategy-for-high-flying-stocks
.. _Heikin-Ashi: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:heikin_ashi
.. _Ichimoku Kinko Hyo: http://www.kumotrader.com/ichimoku_wiki/index.php?title=Main_Page
.. _MACD: https://www.tradingview.com/wiki/MACD_(Moving_Average_Convergence/Divergence)
.. _MFI: https://www.tradingview.com/wiki/Money_Flow_(MFI)
.. _Multiple Time Frames: http://www.babypips.com/school/high-school/multiple-time-frame-analysis/long-or-short.html
.. _VIX: http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:volatility_index
.. _Tape Reading: http://forum.mt5.com/showthread.php?80080-The-Story-Of-Fundamental-Trader-You-are-not-alone

The following are insightful forum resources I have come across

- `Limit and stop-limit orders`_ should be the default order types.
- `LEAPS are evil`_: institutional money do not trade LEAPS.  A rule of thumb is
  to never buy more than 150 days of time.  Try to gauge how much time you think
  you need and do buy a little extra for wiggle room.  However, it is often more
  profitable to buy less time and more contracts.
- `realjumper`_ posted some
  :download:`tips on using Heikin-Ashi <heiken-ashi-candles.pdf>` charts.
- `Yasuji Yamanaka`_ laid out the
  :download:`five rules of Heikin-Ashi <ichimoku-with-modified-candle.pdf>`.
- `RedTrader`_ shared his successful experience of
  :download:`using STO <stochastic-secrets.pdf>`.
- `Rin0`_ offers some interesting
  :download:`insights into tape reading <options-trading-tape-reading.pdf>` and
  :download:`day trading <bid-and-ask-in-day-trading.pdf>`.

.. _Limit and stop-limit orders: https://www.capitaloneinvesting.com/main/help/topic.aspx?CategoryCode=CRTTORDTYP
.. _realjumper: http://www.forexfactory.com/showthread.php?p=5983410#post5983410
.. _Yasuji Yamanaka: http://www.forexmt4.com/_MT4_Systems%20Documentation/heikin-ashi.pdf
.. _RedTrader: http://www.forexfactory.com/showthread.php?t=103884
.. _Rin0: http://forum.mt5.com/showthread.php?80080-The-Story-Of-Fundamental-Trader-You-are-not-alone
.. _LEAPS are evil: http://optionaddict.blogspot.com/2006/10/leaps-are-evil.html

`Margin trading`_ is another tool available to investors; however, the fees
involved (varies among brokerages) limits this to sure-fire situations.  Note
that `margins in forex`_ is an entirely different concept.

.. _Margin trading: http://www.investopedia.com/university/margin/margin3.asp
.. _margins in forex: http://thismatter.com/money/forex/leverage-margin-pips.htm

Brokerages use `four terms`_ to describe option orders:
`sell-to-open`_, `buy-to-close`_, `buy-to-open`_, and `sell-to-close`_.  While
it may seem odd that you would buy to close a position, by taking a long
position in the option, you neutralize the rights you sold when you wrote the
option with the rights gained when you buy the new options, which closes your
position.

.. _four terms: http://www.investopedia.com/ask/answers/04/022604.asp
.. _sell-to-open: http://www.investopedia.com/terms/s/selltoopen.asp
.. _buy-to-close: http://www.investopedia.com/terms/b/buytoclose.asp
.. _buy-to-open: http://www.investopedia.com/terms/b/buytoopen.asp
.. _sell-to-close: http://www.investopedia.com/terms/s/selltoclose.asp

To start your journey, I recommend checking out `tastyworks`_, the successor to
TD Ameritrade's `thinkorswim`_, as your first brokerage.  `finviz`_ and
`TradingView`_ are sufficient as market monitors.  If you're only interested in
long-term investments, go with either `Vanguard`_'s `index funds`_ or
`Robinhood`_.  For high-frequency algorithmic trading, go with
`Interactive Brokers`_.

.. _tastyworks: https://tastyworks.com/commissions-and-fees.html
.. _thinkorswim: https://www.thinkorswim.com/tos/client/
.. _finviz: http://finviz.com/
.. _TradingView: https://tradingview.com/
.. _Vanguard: https://investor.vanguard.com/home/
.. _index funds: https://www.bogleheads.org/wiki/Three-fund_portfolio
.. _Robinhood: https://www.robinhood.com/
.. _Interactive Brokers: https://www.interactivebrokers.com/en/home.php

Taxation
========

Some final issues to worry about are `taxes`_ specifically
`Schedule D, 8949, and 1099-B`_.  Brokerages send out the 1099-B at tax time,
which you then use to fill out the 8949 and Schedule D.  Make sure you adjust
your cost basis before filling out these forms.  Things that affect the cost
basis are

- `Wash sales`_,
- `short sales and constructive sales`_, and
- `assignment and exercise of options`_ (`this example may be helpful`_).

.. _taxes: http://www.investopedia.com/articles/active-trading/053115/tax-treatment-call-put-options.asp
.. _Schedule D, 8949, and 1099-B: http://www.tradelogsoftware.com/resources/schedule-d-form-8949
.. _Wash sales: http://www.tradelogsoftware.com/resources/wash-sales
.. _short sales and constructive sales: http://www.investorguide.com/article/12616/tax-ramifications-in-trading-options-wo
.. _assignment and exercise of options: http://www.optionstaxguy.com/assignment-exercise.html
.. _this example may be helpful: http://www.optionstaxguy.com/assignexexamples.html

One of the confusing points about the 8949 with respect to options are the
`acquired and disposed dates`_.  The acquired date is the date you closed the
transaction.  The disposed date is when the transaction settled.  For option
short sales with a loss, the disposed date is one business day after the
acquired date.  However, if you have a gain, then the disposed date is equal to
the acquired date.  If your option expires, the acquired date is the date of
expiry.  Brokerages typically report these dates correctly, but it's good to
verify as you're filling out your taxes.

.. _acquired and disposed dates: https://ttlc.intuit.com/questions/3278542-how-should-i-enter-the-cost-basis-for-a-short-option-ex-if-i-short-a-put-option-100-is-deposited-to-close-the-postion-60-will-be-withdrawn-leaving-me-with-40

Unless the consolidated 1099-B form is wrong, you can just report those short
and long term gains or losses.  These capital gains are taxed by the federal
government.  If you live in multiple states, then you need to apportion how much
of your capital gains goes to which state.

When trading ETFs, avoid ones that are `limited partnerships`_ unless you want
to process an additional `Schedule K-1`_ tax form.  While ETF options are
taxed like regular stocks, `ETF shares`_ have different tax implications.  If an
ETF does not issue a K-1, then commission fees are the only cost to minimize
because `expense ratios are built into the NAV`_.  However, a lower expense
ratio is always a good thing.

.. _limited partnerships: https://etfdailynews.com/2011/03/09/how-uncle-sam-treats-etfs-and-etns-spy-uso-gld-slv/
.. _Schedule K-1: http://etfdb.com/etf-tax-efficiency/etf-tax-tutorial-complete-list-of-etfs-that-issue-a-k-1/
.. _ETF shares: http://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp
.. _expense ratios are built into the NAV: http://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp

One more annoying issue to be aware of is the adjusted cost basis for
`ESPP and RSUs`_.  Companies will typically withhold a few shares to cover
the taxes, so you will be `double taxed`_ on the `stock discount`_ you received
if you report the cost basis issued to you.  What you need to do is to fill it
out as usual, but do an adjustment saying that the cost basis is wrong.  Then
fill in the adjusted cost basis that your brokerage has on their website.  The
brokerage already reported the proceeds to the IRS, but they did not include the
adjusted cost basis.

.. _ESPP and RSUs: https://thefinancebuff.com/adjust-cost-basis-espp-sale-taxact.html
.. _stock discount: https://turbotax.intuit.com/tax-tools/tax-tips/Investments-and-Taxes/Employee-Stock-Purchase-Plans/INF12047.html
.. _double taxed: https://financialgeekery.com/2012/05/15/the-ins-and-outs-of-espps-part-2-fun-with-taxes/

On a final investment note, after maxing out on your `Roth 401(k)`_, consider
making use of the `backdoor Roth IRA`_.  Furthermore, either select a target
fund or understand portfolio rebalancing
:cite:`jaconetti2010best,daryanani2008opportunistic`.

.. _Roth 401(k): https://www.bogleheads.org/wiki/Traditional_versus_Roth
.. _backdoor Roth IRA: https://thefinancebuff.com/how-to-backdoor-roth-freetaxusa.html

.. rubric:: References

.. bibliography:: refs.bib