Description
Trading Options as a Professional: Techniques for Market Makers and Experienced Traders
Trading Options as a Professional is intended to give prospective market makers a thorough grounding in all advanced topics related to options trading from volatility to delta-neutral trading to setting bid and ask prices to managing position risk. For individual traders it will demonstrate how to plan option trades and how to use volatility to estimate stock-price ranges, to pick stock-price targets, and to choose option strike prices.
Introduction:
Chapter 1 assumes a basic level of options knowledge and presents only a brief review of market fundamentals and strategies discussed later.
Chapter 2 reviews the many features of the Op-Eval Pro software that accompanies this text, which was used to create the tables and exhibits in all chapters.
Chapter 3 explains why options have value, how the values change as market conditions change, and the differences between planning stock trades and planning option trades.
Chapter 4 delves deeper into option price behavior by discussing the Greeks: delta, gamma, vega, and theta.These factors explain the impact of various pricing components. If you understand the Greeks, you will grasp the nuances of advanced spread strategies.
Chapter 5 discusses synthetic relationships, an understanding of which will reinforce your knowledge of option price behavior. Synthetic relationships also can play an important role in risk management.
Chapter 6 expands on synthetic relationships, moving up to the more advanced level of arbitrage strategies, conversions, reverse conversions, and box spreads. Arbitrage is a key element of options market making.
Chapter 7 tackles the concept of volatility. It first demonstrates how historic volatility is calculated and then discusses the dynamics of implied volatility. The review of the statistics involved with expected stock-price distributions will help to clarify what is the essence of volatility. The chapter ends by introducing the subject of volatility skew.
Chapter 8 presents four in-depth delta-neutral trading exercises that demonstrate the theory and reality of this strategy and how speculators and market makers might use it. The exercises reveal some important relationships between option prices and stock-price fluctuations.
In its discussion of setting and adjusting bid and ask prices, Chapter 9 brings together the topics of volatility and synthetic relationships to illustrate how market makers set bid and ask prices and evaluate alternatives for entering and exiting positions.
Chapter 10 demonstrates how position Greeks are calculated and how they might be used to analyze position risk and to set risk limits. Neutralizing the Greeks, identifying which Greek to emphasize, and determining how to choose risk-reducing trades conclude the discussion.
Contents:
- Option Market Fundamentals
- Operating the Op-Eval Pro Software
- The Basics of Option Price Behavior
- The Greeks
- Synthetic Relationships
- Arbitrage Strategies
- Volatility
- Delta-Neutral Trading: Theory and Reality
- Setting Bid-Ask Prices
- Managing Position Risk
