The Unlucky Investor's Guide to Options Trading - Julia Spina

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of engagement and be a powerful tool for creating financial content. Eighteen years ago, I locked myself in our old conference room with one of our cofounders, and we tried to write a book. We hired a professional writer, cleared our schedules, and made the book a priority. Three days later and one and half pages in, we fired the writer and quit the book project to protect our friendship and the future of our firm. Fast forward to early 2021, and I was again bitten by the book bug, but this time, I knew I wasn't up to the task. I asked, as nicely as I am capable of, for two of our young, smart researchers to help. I said, “It's all yours.” Julia and Anton accepted the challenge, and they totally nailed it. I truly believe this is the most logical, informative, and comprehensive book on strategic options trading ever compiled. Unlucky investors can rejoice. No book will ever be a one‐size‐fits‐all holy grail for options trading, but The Unlucky Investor's Guide to Options Trading is the closest thing we have.

Tom Sosnoff

      Preface

      If the conditions are just right, extraordinary things happen when many individual pieces come together: Water molecules organize and form snowflakes; Cells arrange and create organs; Jet streams combine and cause tornadoes; Grains of sand rally and produce avalanches; Investors panic sell and induce financial crashes. Complex systems are composed of many interacting parts, and emergence occurs when these parts organize to create collective phenomena that no one part is capable of creating alone. Complex systems can be found in nearly every discipline, and the mathematics describing emergent properties is not only fascinating but indicates fundamental similarities between seemingly unrelated complex systems. The extinction of a species of fly due to an invasive species of frog has really nothing to do with financial markets, yet the dynamics of the fly population undergoing ecological collapse look nearly indistinguishable from that of a stock undergoing economic collapse. Many physicists gravitate toward finance because physical systems and financial systems can be analyzed with similar theoretical, statistical, and computational tools. It was my interest in those mathematical connections that drew me to finance initially. However, after placing my first trade at the start of the 2020 crash, I quickly learned the importance of financial intuition as well, particularly when trading options.

      A trader's intuition comes from experience, but a trader can more efficiently build that intuition by supplementing market engagement with some basic trading philosophies. Many of the papers, books, and blogs I read as a new options trader offered detailed coverage of options theory and its mathematics, but I never encountered a resource that explicitly laid out the most essential elements of practical strategy development. Without a system of core trading principles, applying financial theory, interpreting and analyzing data, and cultivating any sense of market intuition was challenging. However, once a foundation of options trading fundamentals was in place, overcoming the options learning curve became a considerably more manageable process. In my personal case, this foundation developed from conversations with my coworkers at tastytrade (most of which were debates with Anton Kulikov), watching options markets regularly, using options data and theory to build actionable strategies, and a lot of trial and error. My goal in writing this book is to help new traders build their own intuitions more effectively by breaking down the philosophies that formed the basis for my own, beginning with a bit of math and market theory and building from there. Nothing substitutes for experience, and investors' first options trade will likely teach them more than any book. However, it's my hope this framework that Anton and I organized will allow new traders to enter the options market with confidence and gain meaningful value from their first trading experiences, in both the monetary and educational senses.

Julia Spina

      Acknowledgments

      This world is full of uncertainties, but I'm fairly certain this project would have ended in disaster without the hard work of some very talented people. First and foremost, this book would not have been possible without Tom Sosnoff. Tom originally proposed the project and has wholeheartedly supported my work and opinions throughout this entire process. He is a great boss and never short of awesome restaurant recommendations. The primary editor, Erika Cohen, has not only been highly competent but also wonderful to work with. Involved since the beginning, she played a huge role organizing our ideas, and her insights greatly enhanced the readability and accessibility of the material. I wish only the best for her and her family. The technical editor, Jacob Perlman, has also been crucial in this book's development. His work at tastytrade years ago laid the groundwork for many of the ideas presented in this book, and it continues to inspire retail traders to this day. His mathematical expertise has improved the accuracy and presentation of the technical concepts covered, and I cannot speak more highly of his abilities.

      On the publishing front, Jeff Joseph has been instrumental in transforming our series of drafts into a proper book. He has been immensely helpful in organizing the logistics of the publication process, offering creative advice, and establishing our relationship with Wiley. This book would not have been possible without everyone on the highly skilled editorial team at Wiley, who have all put an exceptional amount of effort into this book. Many people have contributed to the project throughout this process, but those I have collaborated with most closely include Bill Falloon, Purvi Patel, Manikandan Kuppan, Susan Cerra, and Samantha Wu. I'd also like to acknowledge the artistic contributions of Cassie Scroggins, who did a fantastic job designing the cover.

      I am also grateful for the content advice from Thomas Preston, who never shied away from my many phone calls, and the writing advice from Vonetta Logan. It should be noted that everyone at tastytrade, especially the research team, has directly or indirectly had a hand in making this book possible. The ideas presented in this book were not built from scratch but rather the successes and failures of all the talented content creators at tastytrade over many years of collaboration.

Julia Spina

      About the Authors

      Julia Spina is member of the research team and podcast co‐host at tastytrade where she works as a financial educator and options strategist. Drawing from her background in physics and experience with signal processing and data analysis, Julia introduces viewers to topics in quantitative finance and their applications in options strategy development. Prior to transitioning into finance, Julia worked as a regenerative medicine research scientist before attending the University of Illinois at Urbana‐Champaign in 2015. At the University of Illinois, she earned bachelor's degrees in engineering physics (2017) and applied mathematics (2017) and a master's in physics (2018). Her research focus throughout her graduate and undergraduate studies was experimental quantum optics, and her primary projects included investigating the effects of measurement in optical quantum systems and using single‐photon sources to determine the lower limits of human vision and perception.

      Anton Kulikov is a member of the research team and podcast co‐host at tastytrade and a columnist for the financial lifestyle magazine, Luckbox. With a background in finance, data science, and education, he has spent the last four years developing innovative strategies for the retail options market and educating traders in fundamental economic theory on the show. Anton attended the University of Illinois at Urbana‐Champaign where he earned bachelor's degrees in finance (2018) and economics (2018) and worked at the Margolis Market Information Lab. During his time at the University of Illinois, Anton developed coursework on derivatives and capital markets, and taught classes and workshops on financial software at the Gies College of Business.

      Tom Sosnoff is an online brokerage innovator, financial educator, and the founder and co‐CEO of tastytrade. Tom is a serial entrepreneur who cofounded thinkorswim in 1999, tastytrade in 2011, tastyworks in 2017, helped to launch the award‐winning Luckbox magazine in 2019, and in 2020 created the first new futures exchange in 20 years, The Small Exchange. Leveraging more than 20 years of experience as a CBOE market maker, Tom is driven by the passion to educate self‐directed investors. After his years on the trading floor, he saw the need to build and design superior software platforms and brokerage firms that specialized in complex financial strategies. His efforts ultimately changed the way options and futures are traded and how digital financial media is produced and consumed. Currently, Tom hosts tastytrade LIVE and continues to drive innovation and know‐how for the do‐it‐yourself investor. Tom has been named to Techweek's

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