The (original) Option Wizard Trading Method
Fundamentals, Technicals, Options Analysis -- Updated, revised expanded April, 2008

The professionals say:

"The Option Wizard Trading Method presents a series of common-sense rules for trading -- from analysis methods to the proper considerations for purchasing or selling options. These, coupled with a risk management system, should provide an excellent approach to trading options."

Lawrence G. McMillan, leading options analyst, author, founder, McMillan Analysis Corporation

My experience from many, many years in the business: the options sellers do better than the options buyers. There is a different mindset between them, and a great gulf between them. It takes capital and it takes patience to succeed being on the sell side. Option Wizard software and the publication Option Wizard Trading Method magnifies the sell-side possibilities with its price-time decay table and mindset to "not neglect the short side." The Option Wizard Trading Method is an entertaining, yet meaty read. We commend both to the neophyte as well as the experienced trader.

Jay Shartsis, Director, Option Trading, Lafferty & Co. Options Brokers, New York, Options Columnist, The Striking Price, Barrons

"The Option Wizard Trading Method is a very good piece of work -- valuable insights and options lore no trader should be without. Explains how to profit when the product 'never stops dancing.' Very readable, too."

Jerry Kopf, principal, Benjamin & Jerold Stock & Options Discount Brokers, Chicago
Former CBOE market maker and publisher, The Blue Page (options newsletter)

"I am not a systems player nor do I believe in any indicators other than the last sale (tick). However, there is much worthwhile information in the Option Wizard Trading Method.

"This is a very readable and expert integration of stock and options analysis, strategy, case histories and Eastern thought. Will sharpen your trading vision. Very well done. Highly recommended."

Edward Allen Toppel, author, Zen in the Markets

"I have been active in the markets since 1973 and Option Wizard is easily the most comprehensive options system I have seen to date. It is the only program available to the public that easily calculates implied volatility and percent-to-double. This is poetry for Excel.

"The companion text -- the Option Wizard Trading Method -- is a real potent dose of reality for those who wish to trade options, and while it will not always tell you the things you want to hear, it will tell you the things you need to hear to be successful. It offers off-the-beaten track insights into a number of areas: trading the short side of options, volume formations in large and small stocks, which stocks to follow, how often to trade, among others. I recommend this one highly."

Bob Hockenhull, Cutter & Company Brokerage, St. Louis

The Option Wizard Trading Method is one of the most enjoyable technical trading books to read, and most valuable to learn from, that I've come across. The insights here -- especially the emphasis on volume and trend -- here are valuable not only to the novice, but to the seasoned as well.

Spencer A. Brownell, financial consultant, Merrill Lynch Private Client Group, Chicago

A great presentation. Straight forward and to the facts.

Professional Trader and System Developer, Los Angeles

Traders say:

Of all the books that I have been studying I found The Option Wizard Trading Method book the most helpful. It was the only one talking me through several expiring scenarios. I liked the stream of consciousness style used to express your reasoning for taking certain positions and your subsequent actions and reactions to the mood of the market. Thanks again.

Ft. Lauderdale, FL

Very well written, clever insights.


Fascinating presentation.

Barrington, IL

I have started reading your "philosophy" on trading as well and have found it quite stimulating. I am intrigued and heartened to read your opinions on trading.

Northbrook, IL

Very well done. Although I still consider myself a better-than-average amateur in the world of options, I spent much of my life translating Greek, Latin, Hebrew and a few others. I really enjoyed reading a book that is one part experiential mathematics and one part eastern philosophy.

Hattiesburg MS

My copy is dog-earred . . . I’m on my third read. Great!

Billings MT

Option Wizard Trading Method

144 pages, © 1998, 1999, 2000, 2008

In battle there are only the normal and extraordinary forces, but their combinations are limitless.

Sun Tzu, The Art of War

Options are an extraordinary force because they offer leverage. Leverage permits you to control a relatively large position with a relatively small outlay. Nevertheless, there is a price for this power. Options are complex, more so than many realize, and must be treated differently than stocks, indices and futures.

With the help of a tool like Option Wizard, the complexity can become your ally. The Option Wizard Trading Method tells how . . .


2. Preludes of empowerment.. 1
3. Preludes of warning.. 2
4. Not turning back?. 5

5. What’s here?. 6
6. Why trade at all?. 7
7. Trading is . . . 8
8. Why trade options?. 9
9. Options are different.. 10
Leverage 10
Time 10
Volatility 10
In-the-money Probability 11
Limited Risk 11
Short Sale 11
Supercharged Trading 11
10. Trading Psychology.. 12

Relying On Mind 13
The Bavelas Effect 15
Ockham’s Razor 16
How Marcia Clark  Denied Reality and Lost the "Trial of the Century" 16
11. Money Management: Quantify Risk.. 19
12. Fundamental Analysis.. 20
Investors: Buy the company not the stock 20
Industry leader. 20
Outstanding management 20
Proven Earnings Per Share (EPS) Growth. 20
Favorable Price Earnings (PE) Ratio. 20
Favorable Cash Flow.. 20
Favorable New Product Pipeline. 20
Traders: Find Catalytic Change 21
Gold 22
13. Technical Analysis.. 25
The Force Index 25
The Effect of Change: King’s Law of Prices. 26
Measuring the Major Event 26
Building the Force Index 26
Seven Trading Rules. 27
Examples. 30
The Trend: Moving Averages, Trendlines, Slope 42
The Momentum (Stochastics ) 42
14. Forecast.. 44
15. Option Wizard ® Analysis.. 45
Input the 6 Black-Scholes variables: 45
Review the 12 Option Wizard ® outputs 45
Historical volatility. 45
Option price -- fair value. 45
Implied volatility. 46
Volatility implied vs. historical 46
Option premium decay table. 46
Option premium decay charts. 46
Percent to double , or stock-option movement 46
In-the-money probabilities . 46
Delta  table. 47
Greeks 47
Strike Series. 47
Spread Tables. 47
Option Wizard ® Trading Rules 48
1. Analyze fundamentals: follow the leaders. 48
2. Analyze technicals: volume, trend, momentum. 48
3. Forecast movement in price and time. 48
4. Analyze the option itself. 48
5. Determine historical volatility (HV). 48
6. Determine fair value options price: Option Wizard®. 48
7. Get live quote: or or broker. 48
8. Generally, buy if option is in-line to slightly higher fair value . 48
9. When IV > 2HV, consider sale. 48
10. Generally, buy in-the-money or at-the-money options to get a higher delta and in-the-money probability. 48
11. Generally, avoid buying far out-of-the money options to capture short-term price movement. 48
12. Put "percent to double" to work for you. 48
13. Don’t neglect the short side: short calls, short puts. 48
14.  As an options seller, be patient. 49
15. Determine your entry, stop loss, and profit target points in advance. 49
16. Use market orders to your advantage. 49
17. To enter: consider scaling in. 49
18. Quantify risk: determine your stop loss. 49
19. Determine your profit target. 50
20. Do "nothing". 50
21. This map is not the territory. Prepare for unprecedented, unrepeatable encounters with the market. 50
Case histories.. 52
Selling Volatility 52
Trashing the techs, and selling the panic. 52
A volatility collapse: Intel October 85 puts. 54
Nike December 40 Puts: 235% volatility, 99% probability. 54
The AMD K6, and April 97 40 calls. 55
Selling Nike Pre-Earnings Volatility . 57
Dell : the juggernaut losing steam?: February 1999. 58
Expiration 59
Capturing put premium just before expiration. 59
Remember modems? Remember U.S. Robotics?. 59
Expiration month: rapid increase in decay, 59
Buying Calls: 60
Microsoft  and the Battle of Justice. 60
Buying Puts 62
Iomega Stalls Out 62
Probability : 63
Option Wizard Probability: 7 out of 10. 63
Repair 65
Repairing an errant short-against-the-box strategy. 65
When not to repair short-against-the-box strategy. 66
Classic repair: overcome $10 loss for $0 options outlay. 67
Tax 67
Hedging vs. the Tax Man, January 1997 Dell  calls. 67
On Trading: Actionless Activity: 70
Do Nothing Most of the Time. 70
Surge and sitzflesch: May 97 expiration. 70
Still sitting: June 97 expiration. 71
To sell calls or not to sell calls, that is the question. 72
Selling LEAPS on the Great Bull Market: 75
How to participate in an uptrend when you miss the boat. 76
On Trading: Short Selling 77
The long and short of it 77
An Options Investor?. 77
Volume surge: more is less. 79
17. Media as a contrary indicator.. 81
Barron’s on the Bull Market 81
Postscript: Barron's 83
Grant’s Tomb and Recalling the ‘87 Crash 83
TIME , March 3, 1997 “Is the Dow Too Pumped?” 85
Reality Check: Institutional Investor 85
Smart Money  10 not so smart, December 1995 - March 1997 86
Book it: The Education of a Speculator, Victor Niederhoffer 87
Postscript Niederhoffer 87
18. Going forward: what’s next?. 89
Backtest , simulate, paper trade 89
Take the time to define your testing objectives: 89
Take time to revise, retool, rethink. 89
Time and repetition. 90
Like a surgeon, keep studying. 91
19. Option Wizard® Advanced Concepts.. 93
“Option Wizard ® Managed Straddle”™ -- basic 94
MCD, October, 2005, 35/35/32.50, i.e. short calls/puts @35, long puts 32.50. 94
The “Option Wizard® Managed Straddle" ”™ -- Fast Exit, Pure Theta , All Options, No Stock, plus Short Calls On Top 98
GM, May 2003, 35/35/32.50, i.e. short calls/puts @35, long puts 32.50, short calls 37.50. 98
The “Option Wizard" ® Managed Straddle”™ -- Buy As the Stock Moves Up -- Converting Straddle to Covered Calls 100
BSX, October-November 2003, short 70 calls/puts, long 60 put under; again, the importance of early offset. 100
HCA , July 2003, short calls/puts @32.5, long puts 30, cover short calls with stock on the way up 102
BMY, May 2003, short 25 straddle, buy to cover stock. 104
The Option Wizard ® Managed Straddle" ”™, Delay, Diagonal 107
HD, January Managed Straddle  40/40/37.5 versus February, 2006 long calls. 107
Straight Short Straddle with adjustment 110
GG, January, 2006, 17.5 short straddle. 110
Short Straddle: short stock, buy to cover, long stock – profit! 112
AMD, September 2003, short 12.5 straddle, short stock, buy to cover, long stock. 112
Short puts on Fundamental Analysis 113
L, short April 2004 11 puts. 113
GG, short Sept, 2004 10 puts. 114
20. Adjustment – and early action -- is everything.. 116
JPM, short overlapping credit spreads, Dec 2005, 37.5/40. 116
21. The case for early exit.. 122
MO December 2005 Managed Straddle  75/75/70 122
CAT March, 2006 Managed Straddle  70/70/67.5 126
GG March, 2006 27.5 Straddle 128
22. Volatility  calendar.. 130
ELN March/April 2006 12.5 Calendar 130
23. Appendix A. Suggested Reading.. 132
24. Appendix B. What is Wealth? The Narcissus Survey.. 135
25. Appendix C. Option Wizard ® Trading Method, directional and volatility considerations 137

$99.99 in the store at Option Wizard®.  Apply the concepts for six months, if you're not satisfied, we offer money back guarantee, return book to us in saleable condition, we refund price, excluding shipping.


CHICAGO -- Option Wizard is a registered trademark of Sarkett & Associates, Inc.