Options Volatility Trading: Strategies for Profiting from Market Swings
$23.02
| Author(s) | |
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| Format |
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| Pages |
253 |
| Published Date |
2010 |
Options Volatility Trading deconstructs some of the common misunderstandings about volatility trading and shows you how to successfully manage an options trading account and investment portfolio with expertise. This reliable guidebook provides an in-depth look at the volatility index (VIX) and demonstrates how to use it in conjunction with other analytical tools to determine an accurate measure of investor sentiment. However, recognizing a trend isn’t enough.
Author’s Note:
Volatility affects all types of trading, whether you ever lay your eyes on an options screen or not. This book will both help deconstruct some commonly held myths about options and volatility, as well as teach readers how to manage and profit from them. Awareness of the whole concept of volatility has grown by leaps and bounds over the past decade. Unfortunately, so has the misunderstanding of what it all means. Options Volatility Trading will show you how to best measure volatility and how to manage an active account or an investment portfolio in a world of ever-changing risk premiums. And you might actually have some fun doing it!
Numbers? We’ve got numbers. You will learn some factoids about The CBOE Volatility Index, affectionately known as the “VIX” that you never even thought to ask. What days of the week or the expiration cycle might make sense to look for certain types of trades? What happens to volatility at different times of the year or around holidays? Or on different days of the week? You will see plenty of data suggesting different seasonal plays, ideas of what to do when volatility does “X” and the put/call does “Y,” and so on. But this is not a systems book; it’s a concepts book. We’re not here to just give away the fish, as if there was such a simple fish to begin with. We’re here to teach you how to fish—minus an overabundance of fishing and hunting and poker-playing clichés like the one I just used.
Don’t get me wrong, I love to read studies along the lines of, “When we see such and such backdrop, the market has risen 14 of the last 17 times over the next two weeks,” and so on. The trick though is not finding and exploiting pot odds like these; it’s handling trades and positions when you get those rare outliers. I frequently omitted 2008 as part of my statistical work. Why? Well, partly because I would waste everyone’s time putting a caveat on every statistical observation with, “If we eliminate 2008, we see a very different picture.” Consider this one big caveat. Including 2008, of course, provides the most complete and correct picture—if our only goal was to produce a series of hard and fast rules. It’s not. We strive more for guidelines, knowledge that perhaps you throw into your tool set when making trading decisions in any given market.
Volatility analysis always revolves around an assumption of mean reversion, that is, a tendency of moves in one direction to ultimately “revert” to some sort of perceived “mean.” But mean reversion is an amorphous concept. The same way that there is no one single correct Price-to-Earnings ratio or price-to-book valuation or any valuation metric, there’s no correct VIX. Sure, we can get average and median readings over any time frame. But means themselves fluctuate. The year 2008 was about a worldwide diversion from the mean of any and all asset classes. The lesson to me was not that rules stopped working but rather it was that we should always be cognizant that rules can stop working at any time. And we need to trade and invest accordingly.
Contents:
- Who Am I? Why Am I Here?
- Know Your Greeks
- Understanding the VIX
- Nuts and Bolts VIX
- Volatility Timing
- How Do Traders Trade Volatility?
- Options and the Quarterly Earnings Report
- Like the Weather—The Trader VIX and Why It Doesn’t Do What You Think It Does
- Ratio, Ratio
- We’re (Pin) Jammin’
- Myth-Busting and Other Assorted Options-and Expiration-Related Stats
- Buy-Write—You Bet
- Strategy Room
- Ultra and Inverse ETFs
- Chartin’ Them Derivatives
- Plus Ticks and Other Rules
Options Volatility Trading: Strategies for Profiting from Market Swings By Adam Warner pdf
16 reviews for Options Volatility Trading: Strategies for Profiting from Market Swings
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Misael Knox (verified owner) –
Good book for someone starting. Interesting story of of a floor trader. Option Volatility is explained with a back story which might be interesting for some people and boring for some people who are looking to get to the point.
Kody Compton (verified owner) –
I use options in my trading and investing. However, I am not a sophisticated options trader who rebalances his delta hedge on an hourly or daily basis. Instead, I tend to use options to profit from the view I have of the markets or a stock.
As part of my on-going learning, I do read about options on websites, newspapers, and blogs. I read about options traders taking advantage of gamma, and, although I had a sense of what they were doing, I was never clear. After reading Adam Warner’s book “Options Volatility Trading,” I have a solid understanding.
I thoroughly enjoyed this book because it was like having a conversation with Adam, where he gave me a tutorial on how he thinks about options and how he trades them. He could easily have used complex mathematics, charts and diagrams, overly complex strategies to confuse most readers. Instead, he chose a conversational tone with sufficient material that most options readers would readily understand.
If you are brand new to options, this book might not be the proper entry point for you. Instead, you might wish to view the learning tutorials covered by Options News Network, an online site dedicated to, surprise, options.
If, however, you have a reasonable understanding of options, then you will find this book invaluable. By reasonable understanding of options, you know what a put and a call are and can describe them. Moreover, you have a rough idea of the Greeks, though Warner does provide a quick snapshot of the Greeks in his book. You don’t require a strong or thorough understanding, just a reasonable understanding, to benefit from reading this book.
As fair warning, I did read some sections slowly and more than once. However, when I learn new material, I often read sections slowly and more than once. I learn better using this technique.
After reading Warner’s book, I am much more comfortable in reading options articles. For example, when authors talk about the VIX, I am knowledgeable about the VIX, how it works, how to interpret it, and its shortcomings. I have a better appreciation of which options strategies to employ when.
Now that I have read this book, do I plan to become an aggressive options trader? I do not think so. Will I use strategies discussed in this book to enhance my returns? Yes, absolutely.
Is this book a worthwhile investment? Yes, most definitely. Even if the only benefit you derive is being able to understand options articles better than you did before, the book is a worthwhile investment. My knowledge is much stronger than it was before. And, I know that will profit from the knowledge and strategies discussed in the book.
I highly recommend “Options Volatility Trading: Strategies For Profiting From Market Swings” — 5 stars.
Matthias Lozano (verified owner) –
While this this book has an occasional tidbit of useful information, the writing style is annoying and much of information is poorly presented.
Finley Pacheco (verified owner) –
This was the first book that I had picked up regarding volatility.
After having branched out and read other books, mainly by Augen, looking back I see how badly structured it was written.
I do not recommend this book.
Reyna Hahn (verified owner) –
Adam’s book is the most practical book on Options and Volatility Trading I have read. He avoids much of the confusing (and irrelevant) rhetoric included in most Options texts and provides readers a practical and intuitive explanation of what options are, how investors can use options to generate incremental profits for their portfolios, construct targeted trading strategies with attractive risk/reward characteristics and use options to manage risk. This book is applicable for both beginners as well as advanced options traders / research analysts. Don’t get me wrong, in-depth mathematical theories are relevant in a broader academic context; it has its place. Adam’s place is on the trading floor; this book takes you into the action and puts you in a position to become a better options trader. A must read.
Ameer Noble (verified owner) –
It is amazing how somebody with little knowldge about options trading (in his/her own words) rate this book 1 star only. If you are looking for a book to re-define what a call option is then you really don’t need to buy a book at all. Just get the info online. If you want to really take your trading to the next level then this is for you. I assure you that chapter 6 (How Do Traders Trade Volatility) and chapter 7 (Options and the Quarterly Earnings Report) provide the clearest, most practical, and most insughtful description of options volatility trading that I have ever seen. Additionally, the author’s blog is one of the best around. I strongly recommend this book for intermediate to advanced readers. Not for beginners.
Gordon McCarty (verified owner) –
I follow Adam on StockTwits. He is an incredibly intelligent person who is perpetually far more correct on VXX trading than anyone else I have ever seen in 20 years of trading. He routinely answers questions about volatility and is far ahead of any other source I have found.
I liked this book quite a bit and found a lot of useful insights throughout. Sorry for those of you who were negative and apparently seeking another “get rich quick” book that will lead to nothing of the sort. I’ve been on Wall Street for 15 years and have yet to see anyone actually get rich quick without also losing it back quick.
The book is deep and requires work and concentration to grasp the concepts. I did it slowly, thought about what I read along the way and found it valuable in my trading when I trade VXX a few times each week. The book required work and effort for me. But so has a lot of whatever I have learned of value. It isn’t some Michael Lewis entertainment nor another “Trading for Dummies” kind of book.
In my opinion it read like a well thought out textbook written by an extremely intelligent person explaining a constantly changing complex subject. Maybe that means it is for you, maybe not. I trade for the money, not to gamble and not brag/lie about at cocktail parties, understanding volatility can both make me money and also protect what I manage. It’s work, and I’m glad to have worked my way through it.
Elina Middleton (verified owner) –
Regarding Options Trading I say: Options Yes – okay, Options No – okay, Options Maybe – you get squished by the market (Mr. Miyagi said to Karate Kid: `Karate Yes’ – okay, `Karate No’ – okay, `Karate Maybe’ – you get squished like a grape). Trading is profitable if you get the direction right; be it stock or options trading, whether you are betting on price movement or volatility movement.
Warner’s book is definitely not for the beginner in options. If you have not heard of the `Greeks’ before, read a book such as `Volatile Markets Made easy: Trading Stocks and Options for Increased Profits’ by Guy Cohen, before attempting to read Warner’s book. If you have no patience in reading an `opaque chapter’ and reading it again to discover the nuggets of wisdom,this book is not for you. Definitely do not attempt to read the entire book in a single weekend (as I like to do); it can be hazardous to your brain.
It seems unclear which audience Adam Warner intended this book for. Perhaps that’s why despite having read a dozen or so books on Options trading before, Adam Warner leaves me in a fog. Options Trading knowledge and expertise clearly abounds in Mr. Warner’s veins. It would be much easier on the reader if he knew before hand, whether this book is intended for him. (For example on page 26 Warner states `As a Floor Trader, you end up with all sorts of complex positions).
Is this book a manifestation of a Market Maker seeking redemption for some other market maker’s shenanigans? Warner’s opening chapter (Who Am I? Why Am I here?) is full of statements defending Market Makers and Specialists; it is interesting reading but does not contribute to the reader’s successful trading.
While discussing Greeks, Warner’s dual characterization of a Call Option’s Delta as Leverage vs. Embedded Put is interesting and illuminating.
Warner introduces VIX in all its glory in chapters 3-5.His expose of the Volatility Timing in terms of the (daily and monthly biases) VIX levels leads to valuable insight into option trading: `If you intend to buy options, avoid the very end of an expiration cycle and the beginning of the next one. Of course, this assumes that VIX volatility and the specific option volatility are (highly) correlated. See the excellent defense by Warner of why VIX did not fail when it could not forecast the S&P 500 drop in 2008; it’s the correlation, stupid!
Warner states `I am not a big stickler for requiring knowledge of every last term. It’s more important that you understand the risk and reward picture … than to know exactly what to call those attributes’; I couldn’t disagree more. It’s paramount to call them by their correct name (lest you incur the wrath of the Greeks!).Perhaps this attitude led Wagner to use the nebulous terms `Fixed Variable’ and `Moving Variable’ (page 13). Yes, the input variables to the options modeling equation (Stock Price, Strike Price, volatility, Interest Rate, Dividend, Days to Expiry, Days to Ex-Dividend) determine the calculated Option Value (or Premium); of these all but Volatility are variables whose values are known (not fixed) and implied volatility is that volatility value which makes the calculated option value match the market (between Bid and Ask).The modeling equation also calculates the Greeks.
Warner’s story of the Long Gamma Man and Ms. Premium Seller in the context of a Straddle strategy for trading volatility makes for entertaining reading albeit a bit challenging for a beginner. (You may read Guy Cohen’s Options Made easy for the same strategy if you wish to `see’ what’s going on in graphical pictures of the Greeks as well as the Profit Loss profile). Warner’s recommendation of `flipping stocks’ as the underlying moves, is not for most traders; it should be understood well before employing the strategy. Cohen’s approach is straight-forward options buying and profiting from increased volatility.
Warner’s Strategy Room (option strategies)proves that he can be transparent and informative if he chooses to be; but if the author chooses to amuse himself while writing this book who can blame him.
Halo Spears (verified owner) –
This book is one of the best options and volatility trading books on the market – it is meant for the practitioner as well as beginners interested in learning the foundation and multiple facets of options trading.
Sloan Mathis (verified owner) –
Words cannot tell how little value I received from this book. I have limited knowledge about trading options and I hoped that this book would help me beyond the covered write strategy I presently use. It did not help me. Often I found the author’s explanations cryptic, vague and very hard to follow.
Some of his ramblings took a complete chapter to describe a concept that he conclude had no relevant value. As soon as I finished reading (skimming) the final two chapters, I “put” the book in the garbage.
This book may appeal to seasoned option traders but if like me, you are a novice, pass this one by.
Kabir Benitez (verified owner) –
This book is a lot like running a diamond mine. You need to sift through tons of junk to get even a tiny gem out. Yes there are a few small gems to be found here. However they are well buried.
If you want a mathematical treatment try Hull. Make sure you know your calculus and probability theory.
If you want something with substance try Augen. Have some experience first.
If you want a beginner’s book….there are tons of them.
If you want to be tortured by writing style and incomplete treatment buy this one. Don’t think it will appeal to any novices and few experienced traders.
Janiyah Coffey (verified owner) –
Excellent In easy to understand terms!
Gustavo Wilkerson (verified owner) –
Former options market-maker picking his brain, this is the essence of the book. The value for me (who’ll never meet such person in flesh) is huge.
Unlike some other books on options I’ve tried, this one is not dry and boring and there is zero fluff in it.
The intro is intimidating with all the jargon and fast-paced action, but most of this jargon is explained in the book.
Kallie Clayton (verified owner) –
This is a very interesting book if you are interested in trading volatility and already know the basics. It’s basically the advice and experience of a trader who isn’t really that technical or mathematical, but quite smart!
Cecelia Barr (verified owner) –
This is an exceptional book with challenging content. I am always bewildered by the sea of complaints on reviews for trading books that basically say “it was too hard. I don’t know how to use this. It did not put a green arrow on my chart that told me when to buy and a red one to sell a stock to magically make money” Welcome to trading. As an experienced and profitable trader, I can say that I learned a great deal, expanded on concepts I already knew, and gained new understandings of the markets, volatility, and how to use it to inform my trading. From sections on how to understand and use pinning to the historical timeline of how the volatility indexes were developed and what they REALLY mean. Not what all the youtube dorks who day trade it with absolutely zero understanding of what they are even trading. This author put in the years of work to master volatility and shared it with the rest of us and for that, I am most grateful.
Paris Vo (verified owner) –
I bought this book. It was well worth the money. I have learned more on a just a few pages than I have from years of experience.
I do admit that there are some parts of the book that go on and on. I think that’s probably because the publisher said “Adam, the book needs to have about 300 pages or people won’t buy it.” The book could probably be cut in half and been just as valuable to me.
One of the other readers commented about the writing style. I understand the concern. Frankly, I love Adam’s style. (Check out his blog and follow him on Twitter/StockTwits.) What you will find in the book is a lot of excerpts from other peoples writing. Adam gives due credit to the authors, but sometimes the style changes are like hitting a speed-bump at 45 mph.
The parts on the VIX were absolutely outstanding. Also, discussion of pinning was something I thought I understood, but really had it wrong. Adam does a great job explaining these.
One of the most important points about this book is that YOU SHOULD NOT TRADE THE VIX. If you think you want to trade the VIX, read this book. If you still want to trade the VIX you are either dense, crazy, or a very very sophisticated trader.
This book is not for people who are not already experienced with options. You need to have a good solid understanding of options before reading this book.
I will mention that I was hoping to find more on specific strategies that take advantage of changes in Implied Volatility. But, in all fairness to Adam and the book, he does not claim to provide a cookbook or recipe for trades. Rather he provides the concepts to better understand them. And he delivers on that promise.
Bravo Adam! This is one of the best books that I have read in a while.
Despite a few shortcomings, I’ll give it 5 stars. (Also, I want to offset some of those people who gave it 1 star. I don’t want to pass any judgment on their level of experience or intelligence, but they probably shouldn’t have bought the book in the first place.)