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Vertical Option Spreads: A Study of the 1.8 Standard Deviation Inflection Point, + Website


Praise for Vertical Option Spreads

"An interesting read and practical how-to manual on harnessing the power of probability trading."
—Jerry Kensok, CFP®, President/Portfolio Manager, Lewis & Clark Fund Advisers, LLC

"Conrick and Hanson break new ground in applying Monte Carlo simulation techniques to the field of options trading. We're thrilled that Crystal Ball is featured prominently throughout the book as a way for traders to make sound decisions based solely on probability and without regard to market direction. I trust that the ideas and methods put forth in this book will become part of your good fortune."
—Eric Wainwright, Chief Architect, Crystal Ball Software Division, Oracle

"As a CPA and informed investor, I, like the authors, attempted a few investing techniques including use of technical indicators and fundamental financial analysis. My preferred approach was that of an intermediate term investor (weeks to months), and my results were inconsistent. The alternative approach detailed in this book offers a possible solution. The reliance on probabilities helps compensate for the various personal biases investors confront. Combining the rich data analysis with short (weekly) exposure windows presents an intriguing opportunity to manage risk. The power of this approach is further unlocked for each trader by allowing customization of risk tolerance for each trade as the situation merits."
—Joe Hanson, commercial banking officer

Dr. CHARLES CONRICK IV has an extensive background in the business, finance, and trading environment. After a long career in investment planning and small to mid-size business valuation, he entered the academic world in 2002 and is now an Associate Professor of Finance at Dickinson State University in Dickinson, North Dakota. Charles has also been an active options trader for the past five years. He holds a Doctorate in Business Administration (DBA) from Argosy University with a double major in accounting and finance. He is a Chartered Financial Analyst (CFA), a Certified Public Accountant (CPA), and a Certified Financial Planner (CFP).

SCOTT HANSON is an accounting professor at a regional university and is an active trader in the options market. Prior to arriving in academia, he held several key financial positions in U.S. corporations and spent some time as an auditor with PricewaterhouseCoopers. Hanson is a CPA, and earned an MBA from Golden Gate University and a master's of accounting from the University of Georgia.

Preface ix

Chapter 1 Introduction 1

Chapter 2 How to Be a Wizard 11

Chapter 3 Trading Platforms 29

Chapter 4 Vertical Spreads and the Iron Condor 37

Chapter 5 Structuring a Trade 49

Chapter 6 A Brief Visit with the Greeks 65

Chapter 7 Risk and Psychology of Investing and Spread Trading 69

Chapter 8 Normal Distribution, Probability, and Modern Financial Theory 93

Chapter 9 The 1.8 Standard Deviation Solution 111

Chapter 10 More Using Your Crystal Ball and Probability 169

Chapter 11 Conclusion 231

References 237

About the Website 239

Index 241