The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets
The Volatility Edge in Options Trading introduces a charting technique that is designed to help option traders visualize price change behavior. Although the form is new, the underlying mathematics are that of standard option-pricing theory.
Introduction:
The Volatility Edge in Options Trading is written for experienced equity and index option traders who are interested in exploring new technical strategies and analytical techniques.
Many fine texts have been written on the subject, each targeted at a different level of technical proficiency. They range from overviews of basic options positions to graduate-level reviews of option pricing theory. Some focus on a single strategy, and others are broad-based. Not surprisingly, many fall into the “get rich quick” category.
Generally speaking, books that focus on trading are light on pricing theory, and books that thoroughly cover pricing theory usually are not intended as a trading guide.
This book is designed to bridge the gap by marrying pricing theory to the realities of the market. Our discussion will include many topics not covered elsewhere:
- Strategies for trading the monthly options expiration cycle
- The effects of earnings announcements on options volatility and pricing
- The complex relationship between market drawdowns, volatility, and disruptions to put-call parity
- Weekend/end-of-month effects on bid-ask spreads and volatility
This book begins with an introduction to pricing theory and volatility before progressing through a series of increasingly complex types of structured trades. The chapters are designed to be read in sequence. No particular technical background is required if you start at the beginning.
If you plan to study the chapters out of sequence, you should become familiar with the method for creating price spike charts that is outlined in Chapter 3. Chapter 4 contains practical trading information that is often lost to oversimplification.
Chapters 5 and 6 present a broad review of structured positions. Beginners will learn to create mathematically sound trades using a variety of pricing strategies. Chapters 7 and 8 present new information not found anywhere else. The strategies revealed in these discussions leverage price distortions that are normally associated with earnings and options expiration. Chapter 9 was written for the large and growing population of traders who want to optimize their use of online data services.
Contents:
- Fundamentals of Option Pricing
- Volatility
- General Considerations
- Managing Basic Option Positions
- Managing Complex Positions
- Trading the Earnings Cycle
- Trading the Expiration Cycle
- Building a Toolset
