Guide to Expert

Options Trading
Advanced Strategies that will
Put You in the Money Fast
By Jacob Mintz, Chief Analyst, Cabot Options Trader Pro
 As a subscriber to Cabot Options Trader Pro, I hope you will
benefit from my advice and experience in many ways. It will
be my goal to enrich your investing knowledge base, and at
the same time, your brokerage account.

I believe all investors should use options in some form in their investing. Options
can be used to hedge a portfolio, create yield or gain significant market exposure
and returns with little capital risk.

For the advanced options trader, I hope that you will also learn from my
experience. The trading industry is always changing and there isn’t a day that
goes by that I don’t learn something. With all the various strikes and expirations,
there are countless ways to trade options, and we will occasionally use more
sophisticated strategies to gain an edge.

If you have any questions, please don’t hesitate to email me. I enjoy sharing my
knowledge, and your questions and input will help me shape my advice.

Your guide to successful options trading,

Jacob Mintz
Chief Analyst, Cabot Options Trader Pro

—2—
Philosophy
My fundamental philosophy of options trading is to understand the risk and
reward of every trade. When buying or selling options, I break down the best
and worst case scenarios, and determine if the odds are in our favor, and if the
trade fits our objectives.

What makes options so potentially lucrative is that you can make tremendous
profits with little capital at risk. When I buy options, I risk pennies to make
dollars.

When I recommend selling options, I will always do so in a way that has defined
risk, often by using spreads. This way, we're never exposed to catastrophic risk.

In the options world, there are many ways to take advantage of opportunities.
There will be times when I recommend strategies to hit singles, and other times
when I will go for the home run.

If a trade I recommended is making money faster than I had anticipated, I will

often recommend taking off half of the trade. As the old trading saying goes,
“bulls make money, bears make money, and pigs get slaughtered.”

That said, each subscriber to Cabot Options Trader Pro has a unique mix of
investment style, objectives, risk profile and assets. It is up to you to decide
which trades fit your objectives and risk profile. My recommendations are meant
to be informative, but you must decide for yourself in each case whether you
will implement them and what size positions you will take.

Trade Alerts
When I feel that an opportunity for a trade has presented itself, I will send a
detailed Cabot Options Trader Pro Alert to you via your email or text message.
You can always check up on recent Alerts by logging onto the Cabot website
(www.cabotwealth.com).

When the trade is executed in my trading account, the website will be updated
to reflect the new open position, and I will continue to keep you updated in
weekly email and website Updates.

When I feel that the trade should be closed, you will once again receive an email
or text message Alert. All Closed Positions are also logged on the Cabot website.

—3—
Cabot Options Trader Pro Playbook
As I make a trade recommendation, I will reference this “playbook” so that you
will understand my rationale in recommending the trade—and thus be better
able to decide if my proposed trade meets your trading and investing objectives.   

High Risk/High Reward Plays

These are trades with lower probability of success but potential for enormous
profits. Think of hitting a home run instead of hitting singles, with the risk of
striking out. We will gain this type of exposure through outright call and put
purchases or through call and put spreads. Often, there will be limited time for
success, but the price will provide great risk/reward opportunity.

Income Generation
As soon as an option is created, it begins to lose value. This is referred to in the
options trading world as option decay. One way to take advantage of this decay
is by selling call spreads and put spreads. With these trades, we are basically
selling insurance, getting paid to take the risk that the market will not make a
big move. These trades have defined risk/reward, which will be explained in
great detail when I recommend them.    

Earnings Plays
These trades are put on shortly before earnings announcements and taken off
afterwards. We take advantage of possible elevated option volatility or potential
stock movement based on historical price movement and risk/reward.   

Volatility Plays
Using proprietary scans, I find volatility trading opportunities to buy and sell
volatility using straddles, strangles and time spreads.  

Order Flow Reading  

One way to get exposure to the smartest traders and hedge funds in the world
is to watch what they are trading. By using market scans, we can follow large
institutions or hedge funds into their trades. For example, if I see an
extraordinary buyer of calls or puts, we will look to put on the same trade, or
one similar, to gain similar market exposure.   

Momentum Trades  
These are strategies to chase the momentum in the market or individual stocks.
If the market or a specific stock is consistently trending up or down, I will design
a trade to take advantage of the trend.       

—4—
Contrarian Plays  
If I believe the market has gone too far in one direction, I will find option trades
to take a contrarian position to the momentum in case there’s a sentiment
change.   

Portfolio Protection  
These trades are designed to protect your portfolio if I’m fearful of a market turn
to the downside. I will use the purchase of put spreads and the sale of calls to
“hedge” our portfolios.  

Trades tied to other Cabot Analysts’ Picks

These trades will use options on stocks that other Cabot analysts are
recommending, to either benefit from the same trends, or to insure against
downside movement in those stocks.   

—5—
Options Terminology
What is an Option?
An option is a contract that conveys to its holder the right, but not the
obligation, to buy (in the case of a call) or sell (in the case of a put) shares of the
underlying security at a specified price (the strike price) on or before a given
date (expiration day). After this given date, the option ceases to exist. Equity
option contracts usually represent 100 shares of the underlying stock.

Call Option
A call option gives its holder the right to buy 100 shares of the underlying
security at the strike price, anytime prior to the options expiration date. The
seller of the option has the obligation to sell the shares

Put Option
A put option gives its holder the right to sell 100 shares of the underlying
security at the strike price, at any time prior to the options expiration date. The
seller of the option has the obligation to buy the shares.

Strike Prices
Strike Prices (or exercise prices) are the stated price per share for which the
underlying security may be purchased (in the case of a call) or sold (in the case
of a put) by the option holder upon exercise of the option contract.

Exercise
Exercise is the process by which an option holder invokes the terms of the
option contract. If exercising a call the holder will buy the underlying stock,
while the put owner will sell the stock under the terms set by the option
contract. All option contracts that are in-the-money by at least one cent at
expiration will be automatically exercised.

Expiration Date
The expiration date is the last day an option exists. Monthly options cease
trading on the third Friday of each month and expire the next day. Weekly
options cease trading on the Friday of the week they are due to expire.

The Options Premium

An options price is called the “premium.” The potential loss for the holder of an
option is limited to the initial premium paid for the contract. On the other hand,
the seller of the option has unlimited potential loss that is somewhat offset by
the initial premium received for the contract.

—6—
 Time Decay
All options are a wasting asset whose time value erodes to zero by expiration.
This erosion is known as time decay. Generally, the longer the time remaining
until an option’s expiration, the higher the premium will be. This is because the
longer an option’s lifetime, the greater the possibility that the underlying share
price might move so as to make the option in-the-money. This time decay
increases rapidly in the last several weeks of an option’s life as the likelihood of it
finishing in the money declines.

Hedging
Hedging is a conservative strategy used to reduce investment risk by
implementing a transaction that offsets an existing position.

The VIX
VIX is the ticker symbol for the Chicago Board of Options Exchange Market
Volatility Index, a key measure of market expectations of near-term volatility
conveyed by S&P 500 stock index option prices. Often referred to as the fear
index, the VIX represents the market’s expectation of stock market volatility over
the next 30 days.

Historical Volatility
Historical volatility is the realized stock volatility over a given period of time.
Often times expressed in time periods of 10 days, 30 days and 60 days.

Implied Volatility
Implied volatility is an important input in pricing options. If the market becomes
volatile, or is expecting more volatility, implied volatility will rise thereby
increasing the price of options. On the other hand, if the market expects lower
volatility, the implied volatility will fall, thereby lowering the price of options.
Traders often use historical volatility to price implied volatility.

Sources: Chicago Board Options Exchange (CBOE), International Securities Exchange (ISE).

—7—
 Cabot Option Trading Pro Strategies
Call Purchase

A call purchase is used when a rise in the price of the underlying asset is
expected. This strategy is the purchase of a call at a specific strike price with
unlimited potential for profits. The maximum loss on this trade is the amount of
premium paid.

14
Call Purchase For example, the purchase of
13
12
the XYZ 100 strike call for $1
11
10
would only risk the $1 paid. If
9 the stock were to close at
Profit and Loss

8
7 $100 or below at expiration,
6
5 that call purchase would be
4
3 worthless. If the stock were to
go above $101, the holder of
2
1
0
-1 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 this call would make $100 per
-2
XYZ Stock contract purchased per point
above $101.

Call Sale

A call sale is used when a decline in the price of the underlying asset is expected.
This strategy is the sale of a call at a specific strike price with unlimited potential
for loss. The maximum gained on this trade is the amount of premium received.
Call Sale
2

1 For example, the sale of the

0

-1
90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 XYZ 100 strike call for $1
would collect a maximum of
Profit and Loss

-2

-3 $1 if the stock were to close

-4
below $100 at expiration. If
-5

-6
the stock were to go above
-7 $101, the seller of this call
-8
would lose $100 per contract
-9

-10
sold per point above $101.
XYZ Stock

—8—
 Put Purchase

A put purchase is used when a decline in the price of the underlying asset is
expected. This strategy is the purchase of a put at a specific strike price with
unlimited potential for profits. The maximum loss on this trade is the amount of
premium paid.
Put Purchase
For example, the purchase of
10

9
the XYZ 100 put for $1
8 would only risk the $1 paid.
7
If the stock were to close at
6
Profit and Loss

5
$100 or above at expiration,
4 the put would expire
3
worthless. If the stock were
2

1
to go below $99, the holder
0 of this put would make $100
-1
90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110
per contract purchased per
-2
XYZ Stock
point below $99.

Put-Write

A put-write is used when a rise in the price of the underlying asset is expected.
This strategy is the sale of a put at a specific strike price with the potential for
loss till the stock hits zero. The maximum gained on this trade is the amount of
premium received.
Put Sale
2
For example, the sale of the
1 XYZ 100 strike put for $1
0

-1
90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 would collect a maximum of
$1 if the stock were to close
Profit and Loss

-2

-3
above $100 at expiration. If
-4

-5 the stock were to go below

-6
$99, the seller of the put
-7

-8
would lose $100 per contract
-9 sold until the stock hit zero.
-10

XYZ Stock

—9—
 Buy-Write (Covered Call)

The term buy-write is used to describe an options strategy in which the investor
buys stocks and writes or sells call options against the stock position. The writing
of the call option provides extra income for an investor who is willing to forgo
some upside potential.

My example shows the

Buy-Write

1100 purchase of 100 shares of

1000
900
stock XYZ, which is trading
800
700
at 100, and the sale of the
600 XYZ 105 strike call for $5. If
the stock were to close at
500
Profit and Loss

400
300
200
100 on expiration, the trader
100
0
will collect $5 on the
-100 90 91 92 93 94 95 96
expiring call. If the stock
97 98 99 100 101 102 103 104 105 106 107 108 109 110

-200
-300 were to close at 105, the
-400
-500
trader would make $500 on
-600
his stock appreciation and
XYZ Stock

$500 on his call. If the stock

were to fall to 95, the trader would lose $500 on his stock, but make $500 on
the call, which would leave him at breakeven.

Bull Call Spread

A bull call spread is used when a rise in the price of the underlying asset is
expected. This is a strategy that involves purchasing a call at a specific strike
price while simultaneously selling a call at a higher strike price. The maximum
profit on this strategy is the difference between the strike price of the long and
short option, minus the premium paid.

Bull Call Spread

For example, the purchase of
10

9
the XYZ 100/110 bull call
8 spread would entail buying
7
the XYZ 100 calls and selling
6
the XYZ 110 calls. If you paid
Profit and Loss

4 $1 for this spread, the most

you can lose is the $1 paid.
3

1 The most you can make is $9

-1
0
95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 if the stock were to go to
-2 $110 or above.
XYZ Price

— 10 —
 Bear Call Spread

A bear call spread is used when a decline in the price of the underlying is
expected. This strategy involves the selling of a call at a specific strike price while
simultaneously buying a call at a higher strike price. The maximum profit on this
strategy is the premium collected. The maximum loss is the difference between
the strikes minus what you received.
Bear Call Spread
2 For example, the sale of the
1
XYZ 100/110 bear call spread
0

-1
95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 would entail selling the XYZ
-2 100 calls and the buying of
Profit and Loss

-3
the XYZ 110 calls. If you
-4

-5
collect $1 for this spread, the
-6 most you can make is $1. The
-7
most you can lose is $9 if the
-8

-9
stock were to go to $110 or
-10 above.
XYZ Stock

Bear Put Spread

A bear put spread is used when a decline in the price of the underlying is
expected. This strategy involves the buying of a put at a specific strike price while
simultaneously selling a put at a lower strike price. The maximum profit on this
strategy is the difference between the strike price of the long and short option,
minus the premium paid. The maximum loss is the premium paid for the put
spread.

10
Bear Put Spread For example, the purchase of
9 the XYZ 100/90 bear put
8

7
spread would entail the
buying of the XYZ 100 put
Profit and Loss

and selling of the XYZ 90 puts.

5

3
If you paid $1 for this spread,
2

1 the most you can lose is the

0

-1
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105
$1 paid. The most you can
-2 make is $9 if the stock were to
XYZ Stock Price
go to $90 or below.

— 11 —
 Bull Put Spread

A bull put spread is used when a rise in the price of the underlying is expected.
This strategy involves the selling of a put at a specific strike price while
simultaneously buying a put at a lower price. The maximum profit on this
strategy is the premium collected. The maximum loss is the difference between
the strikes minus the premium that was received.

Bull Put Spread For example, the sale of the

2

1
XYZ 100/90 bull put spread
0
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105
would entail the selling of
the XYZ 100 puts and the
-1
Profit and Loss

-2

-3

-4
purchase of the XYZ 90 puts.
-5 If you collect $1 for this
-6

-7
spread the most you can
-8 make is $1. The most you
can lose is $9 if the stock
-9

-10
XYZ Stock
were to go to $90 or below.

Long Straddle

A long straddle is a good options strategy to pursue if a trader believes that a

stock’s price will move significantly, but is unsure of which direction. A long
straddle is also a good strategy if a trader believes that option volatility is priced
below a stock’s potential movement. The gain is unlimited to the upside and
limited to the downside if the stock were to go to zero. The maximum loss is
the premium paid.

Long Straddle
For example, the purchase of
7
the XYZ June 40 Straddle
6 would entail buying the XYZ
5
June 40 Call and buying of
4

3
the XYZ June 40 Put. If you
paid $4 for this straddle, the
Profit and Loss

1
most you can lose is the $4
0

-1
30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 paid. Your profits are limited
-2 to $36 if the stock went to
-3
zero, and unlimited to the
-4

-5
upside.
Stock Price

— 12 —
 Long Strangle

A strangle is a good options strategy to pursue if a trader believes that a stock’s

price will move significantly, but is unsure of which direction. A strangle is also a
good strategy if a trader believes that volatility is priced below a stock’s potential
movement.

To purchase a strangle, a trader buys a long position in both a call and a put with
different strike prices, often out of the money, but with the same expiration date.
Long Strangle
For example, the purchase of
8

7
the XYZ June 35/45 strangle
6 would entail buying the XYZ
5 June 35 Put and the XYZ June
4
45 Call. If you paid $2 for this
Profit and Loss

2
strangle, the most you can
1 lose is the $2 paid. The most
0 you can make is $33 if the
25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55
-1
stock were to go to zero and
your profits are limitless to the
-2

-3
Stock Price upside.

Long Iron Condor

A long iron condor is a directionally neutral spread used when a stock’s price
is expected to stay within a range. This is a strategy used when volatility is
believed to be too high. The strategy involves the selling of an out-of-the-money
put spread and an out-of-the-money call spread. The maximum profit on this
strategy is the premium received. The maximum loss is the difference between
the strike’s sold price minus the premium received.

Long Iron Condor For example, the long iron

3 condor would entail the sale of
2 the 85/80 put spread and the
1 sale of the 100/105 call spread
for a $2 credit. If you collected
Profit and Loss

0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110

-1 $2 for the iron condor, the

-2 most you can make is $2 if the
-3 stock stays between 85 and
-4
Stock Price
100. The most you can lose is
$3 if the stock were to go to
80 or below, or 105 or above.

— 13 —
 Long Butterfly Spread

Long butterfly spreads can be used to enter either a bullish or bearish trade.
Butterfly spreads use four option contracts (puts or calls depending on directional
opinion) with the same expiration but three different strike prices to create a range
of prices the strategy can profit from. The trader sells two options at the middle
strike price and buys one option contract at a lower strike price and buys another
option contract at a higher strike price. The most you can lose is the premium spent
if the stock were to close below the lower strike price or above the higher strike
price. Your maximum return is achieved when the price of the stock closes near the
middle strike price at expiration.

Long Butterfly
For example, the purchase of the
9

8
XYZ January 80/90/100 Long
7 Butterfly for $2 would entail
6

5
buying one 80 call, selling two
times the 90 calls, and buying
Profit and Loss

3 one of the 100 calls. The most

2

1
you can lose on this spread is the
0 $2 paid. The most you can make
on the trade is $8 if the stock
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 10 10 10 10 10 10
-1 0 1 2 3 4 5

closes at $90 on expiration.

-2

-3
XYZ Stock Price

Risk Reversal

A risk reversal is typically used when a rise in the price of the underlying asset is
expected. This strategy is typically the sale of an out of the money put and the
purchase of an out of the money call. This trade has unlimited profit potential to the
upside and extreme loss potential to the downside.

Risk Reversal For example, a January 20/25

7
risk reversal for a $1 credit would
6 be the sale of the January 20
5

4
Put and the purchase of the
3 January 25 Call. If the stock stays
between $20 and $25, the trader
Profit and Loss

0
collects the $1 credit. If the stock
-1
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
goes to $20 or below, the trader
-2 will be forced to buy the stock. If
the stock goes to $25 or above,
-3

-4

-5 the trader will exercise his right

to buy the stock, or simply sell
XYZ Stock Price

out his call for a profit.

— 14 —
 Long Time Spreads
A time spread is used when a stock or index is believed to be range-bound and
when volatility is believed to be too low. The strategy involves the selling of an
option in a near-term expiration cycle and the purchase of an option in a longer-
term expiration cycle. This spread looks to take advantage of time decay of the
option closer to expiration. The maximum loss is the premium paid.

For example, the purchase of the XYZ January/February 100 Call spread would
entail the sale of the January 100 Call and the purchase of the February 100 Call.
The goal of the trade is for the January call to expire worthless while the February
call appreciates in value.

Diagonal Spreads
A diagonal spread is a bullish position that reduces capital outlay. The strategy
involves the selling of an out-of-the-money near-term option and buying a longer-
term option closer to at-the-money. This spread looks to take advantage of the time
decay of the option closer to expiration. The maximum loss is the premium paid.

For example, one could sell the October 25 call (expiration 10/19/2014) and buy
the January 20 call (expiration 1/19/2015) for a net debit. The goal of the trade is
for the October call to expire worthless while the January call appreciates in value.

Collar

A collar is a protective options strategy that is implemented with a long stock

position. It’s created by purchasing an out-of-the-money put and selling an out-
of-the-money call. The put protects against downside movement in the stock, and
the call, while limiting the upside of the position, helps reduce the cost of the put
protection.
For example, if you purchased
Collar

5
100 shares of stock XYZ, to
collar this trade you would buy
4
one XYZ January 23 Put and
3
sell one XYZ January 30 Call for
2
$1 debit. If the stock went to
Profit and Loss

1 23 or lower at expiration, you

0 would exercise the put, which
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

-1
would take you out of the stock
-2
position. If the stock went to
30 or above at expiration, you
would be forced to sell your
-3
XYZ Stock Price

stock position.

— 15 —
 Resources
Option Volatility & Pricing by Sheldon Natenberg

If I were to recommend one book to learn about options and options trading, it would
be Option Volatility & Pricing. This book does an outstanding job of breaking down the
fundamentals of options, slowly building up to more complex concepts. Unlike many
other authors, Natenberg uses very little exotic math, and illustrates many important
concepts in an easy to understand manner. Many traders consider this book to be the
“bible” on options trading and is mandatory reading for most proprietary firms and
derivatives training programs. 

Chicago Board of Options Exchange (CBOE) website

Another trading resource is the Chicago Board of Options Exchange (CBOE) website
(www.cboe.com), which has many functions for all levels of traders including seminars,
online courses as well as the opportunity to trade with “paper money.”

Livevol Stock Options Trading Software

The trading tool that I use to find many of my trade ideas is from a company named
Livevol, Inc. (www.livevol.com). Their software was designed by traders for traders, and
is an outstanding way to scan the options world for trading opportunities without a
degree in computer science. Livevol excels in volatility comparisons, order flow
recognition and historical pricing.

176 North Street • Salem, Massachusetts 01970 • 978-745-5532 • www.cabotwealth.com

Cabot Options Trader is published by Cabot Wealth Network, which is neither a registered investment advisor nor a registered broker/dealer. Neither Cabot Wealth
Network nor our employees are compensated in any way by the investments we recommend. Information is obtained from sources believed to be reliable, but is
in no way guaranteed to be complete or without error. Recommendations, opinions or suggestions are given with the understanding that readers acting on the
information assume all risks involved.

Options and other investments are subject to risk and are not suitable for all investors. Please read “Characteristics and Risks of Standardized Options” prior to
trading options. There is no guarantee that any of the strategies or services promoted will result in the desired outcome. This content provided is for general
education and information purposes only. No statement contained herein should be construed as a recommendation to buy or sell a security or to provide
investment advice. All readers should consult with an independent financial advisor with respect to any investment in the securities mentioned.

In no event should the content of this report be construed as an express or implied promise or guarantee from Cabot Wealth Network or that you will profit or that
losses will be limited in any manner whatsoever. Any opinions, projections and predictions expressed are statements as of the date of this publication and are subject
to change without further notice. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of past
recommendations.
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