Winning Stock & Option Strategies

by S. A. Johnston

Quick Summary

This practical options trading guide covers the fundamentals of spread trading, options instruments (long/short calls and puts), and progressively advanced strategies including protective puts, covered calls, collar trades, credit spreads, iron condors, calendar spreads, and diagonal spreads. The book emphasizes low-risk and no-risk trading structures that limit downside while maintaining profit potential, with clear examples showing entry, adjustment, and exit criteria for each strategy.

Detailed Summary

"Winning Stock & Option Strategies" is an options trading manual structured in progressive sections that build from basic concepts to sophisticated multi-leg strategies.

Section 1 introduces spread trading, distinguishing it from directional trading. The author argues that spread trading offers defined risk, lower margin requirements, and the ability to profit in any market direction. The section covers basic options terminology (strike price, expiration, intrinsic value, time value, in/out/at-the-money), options chain reading, and the psychology of greed and fear as they apply to options trading.

Section 2 details the four fundamental options instruments: long calls, long puts, short calls, and short puts. Each is presented with a risk/reward profile, payoff diagram, and scenarios for when each is appropriate.

Section 3, "Secrets to Low Risk / No Risk Trading," presents three foundational strategies. The protective put eliminates downside fear by purchasing a put option to insure a stock position. The covered call eliminates greed by selling a call against owned stock, generating income while capping upside. The collar trade combines both -- buying a protective put and selling a covered call -- creating a nearly zero-cost structure that bounds both risk and reward within defined levels. The "million dollar question" section discusses when and how to adjust collar trades as conditions change.

Section 4, "Profit in Any Market Trend," introduces credit spreads (bull put spreads and bear call spreads), which profit from time decay in range-bound or directionally favorable markets. The iron condor strategy combines a bull put spread with a bear call spread to profit when the underlying stays within a defined range. The section covers entry criteria, strike selection, adjustment rules, and exit strategies.

Additional sections cover calendar spreads (profiting from differences in time decay between near-term and far-term options), diagonal spreads (combining calendar and vertical spread characteristics), and advanced adjustment techniques for managing positions when the market moves adversely.

Throughout, the book provides specific numerical examples with stock prices, option premiums, profit/loss calculations at various price points, and decision trees for when to hold, adjust, or close positions. The emphasis throughout is on defined-risk strategies where the maximum loss is known before entering the trade.