Profit with Options: Essential Methods for Investing Success

By Lawrence G. McMillan

Overview

Published in 2002 by Wiley, "Profit with Options" is Lawrence G. McMillan's more accessible companion to his comprehensive reference "Options as a Strategic Investment." While the latter serves as an encyclopedia of options strategies, this book focuses on the most profitable and practical strategies that McMillan has found effective over decades of options trading.

Key Themes and Arguments

Strategic Option Buying

McMillan covers the selection criteria for profitable option purchases, including the use of expected return analysis, proper strike price and expiration selection, and the critical importance of implied volatility levels in determining whether options are attractively priced.

Option Selling Strategies

The book addresses covered call writing, naked put selling, and ratio writing strategies. McMillan provides guidelines for selecting appropriate underlying stocks, managing assignments, and adjusting positions when market conditions change.

Volatility Trading

A significant portion is devoted to volatility-based strategies, reflecting McMillan's view that trading volatility (rather than direction) represents one of the most reliable sources of options profits. He explains how to identify mean-reversion opportunities in implied volatility and how to construct positions that profit from volatility changes.

Portfolio Protection

The book covers the use of options for portfolio insurance, including protective puts, collars, and index options hedging strategies. McMillan provides practical guidance on the cost-benefit analysis of different protection strategies.

Index Options and Futures Options

Dedicated chapters address the unique characteristics and opportunities of index options and futures options, including the use of these instruments for speculation, hedging, and income generation.

System Trading with Options

McMillan presents several systematic options trading approaches, including strategies based on put-call ratios, volatility signals, and seasonal patterns. These systematic approaches provide a disciplined framework for implementing options strategies.

Significance

For investors and traders seeking to integrate options into their investment approach without the encyclopedic scope of McMillan's larger work, "Profit with Options" provides focused, practical guidance from one of the most respected practitioners in the field.