Trading Options: Using Technical Analysis to Design Winning Trades, + Website


Praise for Trading Options

“For the last few years I’ve learned innumerable lessons from Greg Harmon about how to understand and take advantage of price. It has never been more critical for investors and traders to understand how supply and demand affects the price of a stock. Greg’s illustrative explanations will awaken you to a whole new way of seeing the markets.”
—Joshua M. Brown, CEO, Ritholtz Wealth Management, author of The Reformed Broker blog

“When I need a reliable read on a stock or commodity chart, Greg Harmon is my go-to guy. In his wonderful book, Greg guides the reader through the black arts of technical analysis. But then Greg goes to the next, even more important step—teaching the options strategies that will work and when to employ them. Read his book—I’ve made money listening to Greg over the years and so can you.”
—Dan Dicker, Senior contributor at, CNBC Contributor and author of Oil’s Endless Bid

“Looking for a comprehensive guide to options, look no further, Trading Options delivers a well-designed top-down approach perfect for any trader. The trading plan outlined will have you trading more effectively in no time. Read it, learn it, breathe it … Greg delivers the goods.”
—David Stendahl, Trading Principal, Signal Financial Group

“Greg is one of the very few with the ability to connect the dots and consistently make sense of the always unpredictable stock market. There is no holy grail to investing, but his trading strategies and experience are invaluable.”
—Ryan Detrick, Senior Technical Strategist, Schaeffer’s Investment Research

“Every trader has to find a strategy that works for them, and Greg has developed a great approach for game-planning options trades. His approach to technical analysis is consistent and objective, and his work ethic allows him to always stay in tune with the market. Trading Options is a great resource for anyone trying to understand technical analysis and especially as it relates to options.”
—Scott Redler, Chief Strategic Officer/partner, T3 Partners

“As another self-proclaimed top-down technician I know what it’s like ripping through 1000 charts in a weekend. In Trading Options Greg Harmon explains the importance of perfecting this process to benefit you as a trader. He explains a variety of complex concepts in more simple terms. I particularly enjoyed how the book proceeds from first identifying larger trends to then executing trades using options.”
—J.C. Parets, CMT, Founder & President, Eagle Bay Capital, LLC

GREG HARMON, CMT, CFA founded Dragonfly Capital Management, LLC to provide daily technical analysis of securities markets and consulting services to the marketplace. He is also a Founding Partner and CIO of Presidium Capital Management, an asset management firm investing for clients in separate accounts. Prior to that, he spent time trading in the Securities markets beginning in 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy, and Director of Equity and Portfolio Swaps Trading at Chase Manhattan, State Street Corporation, and BNP Paribas. Greg earned an MBA in Finance from NYU Stern School of Business, and a BS in Mechanical Engineering from Cornell University.

Foreword xi

Introduction 1

Part I Identifying and Understanding the Trend 7

Chapter 1 Identifying the Major Trend 9

Market Influencers and Intermarket Relationships 14

Significant Market Ratios 19

Other Indicators 22

Conclusion 27

Chapter 2 Sector Review Analysis 29

Case Study: Sector Ranking 30

Relative Strength 37

Conclusion 38

Part II Technical Analysis for Identifying Individual Stocks 41

Chapter 3 Classical Technical Analysis 45

Support and Resistance 45

Patterns 49

Conclusion 63

Chapter 4 Japanese Candlestick Patterns 65

Reversal Patterns 66

Continuation Patterns 76

Indecision Candles 80

Conclusion 83

Chapter 5 Derived and Quantitative Analysis 85

Fibonacci Analysis 85

Harmonic Trading 91

Elliott Wave 100

Andrews’ Pitchfork 101

Conclusion 103

Chapter 6 Price Derivatives, Momentum, and Other Indicators 105

Relative Strength Index (RSI) 105

Moving Average Convergence/Divergence (MACD) Indicator 110

Bollinger Bands 112

Moving Averages 114

Conclusion 119

Chapter 7 The Watch List and Initial Plan 121

Create the Mosaic 121

Other Information 123

The Plan 125

Conclusion 130

Part III Options Strategies 133

Chapter 8 Introduction to Options 135

Definitions 135

Expiration and Exercise 136

Contract Size 137

Price Terminology 137

Why Use Options 138

How Different from Stock 139

Option Tables 140

Some Basics Applied 142

Conclusion 144

Chapter 9 Options Combinations 145

Covered Call or Buy Write 146

Long a Put or Call 147

Short a Put or Call 147

Long a Put Spread or Call Spread 149

Short a Put Spread or Call Spread 150

Long a Ratio Put or Call Spread 152

Long or Short a Calendar 154

Long or Short a Diagonal 156

Long or Short a Butterfly 158

Long or Short a Straddle 161

Long or Short a Strangle 163

Long or Short an Iron Condor 164

Long or Short a Risk Reversal 165

Conclusion 167

Part IV Design and Execution 169

Chapter 10 The Elements of Design 171

The Elements 171

Position Sizing and Stop Losses 174

Conclusion 179

Chapter 11 Trading Plan 181

What to Look For 181

Conclusion 198

Chapter 12 Execution and Beyond 199

Execution 199

Hedging, Profit Taking, and Adjustments 203

Conclusion 209

Conclusion 211

Additional Resources 213

About the Companion Website 215

About the Author 217

Index 219