Options Made Easy: Your Guide to Profitable Trading (Third Edition)

By Guy Cohen

Quick Summary

A comprehensive, visually driven options education book that makes complex options strategies accessible through clear diagrams, step-by-step explanations, and integration with fundamental and technical analysis. Cohen covers everything from basic options mechanics (calls, puts, intrinsic value, time value, the Greeks) through advanced multi-leg strategies (spreads, straddles, strangles, butterflies, condors), with each strategy presented using a standardized visual format showing risk/reward profiles, breakeven points, and optimal market conditions for deployment.

Categories

• Options
• Trading

Detailed Summary

"Options Made Easy: Your Guide to Profitable Trading" Third Edition (FT Press/Pearson, 2013) by Guy Cohen is a 369-page options education textbook that has earned widespread praise for making a complex subject genuinely accessible. The book's visual approach -- with risk/reward diagrams for every strategy -- distinguishes it from more text-heavy options references.

Chapter 1: Introduction to Options builds the foundation. Cohen explains the four basic building blocks: buying calls, selling calls, buying puts, and selling puts. Each concept is defined clearly: an option is a contract giving the right (but not the obligation) to buy or sell an underlying asset at a fixed price before a predetermined date. The exercise (strike) price, expiration date, intrinsic value, and time value are explained with practical examples. Cohen distinguishes between in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM) options for both calls and puts, and explains how options valuation splits into intrinsic value (the portion that is ITM) and time value (the remainder, also called "hope value").

Chapters on Fundamental and Technical Analysis provide context for options trading decisions. Cohen argues that options traders need both fundamental analysis (to identify what to trade) and technical analysis (to determine when and in which direction to trade). The fundamental section covers financial statement analysis, earnings, revenue trends, and valuation metrics. The technical section covers chart patterns, trend identification, support/resistance, and momentum indicators.

Strategy Chapters form the book's core. Each options strategy is presented in a standardized format: market outlook required, risk/reward profile diagram, maximum profit potential, maximum risk, breakeven calculation, and step-by-step construction instructions. Strategies covered include:

• Basic strategies: Long call, long put, covered call, protective put
• Vertical spreads: Bull call spread, bear put spread, bull put spread, bear call spread
• Income strategies: Covered call writing, cash-secured puts, credit spreads
• Volatility strategies: Long straddle, long strangle, short straddle, short strangle
• Advanced strategies: Butterfly spreads, iron condors, calendar spreads, diagonal spreads, ratio spreads

For each strategy, Cohen explains the optimal market conditions, the role of implied volatility, the impact of time decay (theta), and how the position's Greeks evolve over the life of the trade. The visual risk/reward diagrams make it immediately clear what the trader gains and risks at every possible price level at expiration.

Risk Management and Greeks receive dedicated coverage. Cohen explains delta, gamma, theta, vega, and rho in practical terms, showing how these sensitivities affect position value as market conditions change. The concept of delta-neutral hedging and how professional options traders manage their Greek exposures is introduced.

The third edition updates include coverage of weekly options, which had gained popularity since the previous edition but were "still not quite as actively traded as the traditional monthly options" at the time of publication. Cohen notes that U.S. equity monthly options expire on the Saturday after the third Friday of every month.

The book's greatest strength is its consistency of presentation -- every strategy is taught using the same visual framework, allowing readers to compare strategies directly and understand the tradeoffs involved in choosing one approach over another.