In Volatility Trading, Sinclair offers you a quantitative model for measuring volatility in order to gain an edge in your everyday option trading endeavors. With an accessible, straightforward approach. He guides traders through the basics of option pricing, volatility measurement, hedging, money management, and trade evaluation. In addition, Sinclair explains the often-overlooked psychological aspects of trading, revealing both how behavioral psychology can create market conditions traders can take advantage of-and how it can lead them astray. Psychological biases, he asserts, are probably the drivers behind most sources of edge available to a volatility trader.
Author’s Introduction:
The concepts behind this type of trading are largely unchanged, but my emphasis has probably changed slightly. Although academics have continued to work on forecasting volatility, I think the improvements from the perspective of an option trader are now marginal. For example, the profitability of equity volatility long short portfolios has declined significantly over the past five years.
This would probably not be what I would choose to focus on now. So although I have slightly expanded the section on volatility forecasting, I think it is now more important than ever to look for situations where the odds are in our favor whether we can accurately measure and forecast volatility. To this end, I have added chapters on stylized facts of markets and the variance premium.
I have also expanded the chapter on psychology. The usefulness of behavioral psychology to traders is still a matter of debate. Traders themselves seem to be greatly polarized, either being true believers or completely dismissive. I make no apologies for being a believer. I know that studying this has helped me. This book is about trading volatility. More specifically, it is about using options to make trades that are primarily dependent on the range of the underlying instrument rather than its direction.
Contents:
- Option Pricing
- Volatility Measurement
- Stylized Facts about Returns Stylized Facts about Returns
- Volatility Forecasting
- Implied Volatility Dynamics
- Hedging
- Distribution of Hedged Option Positions
- Money Management
- Trade Evaluation
- Psychology
- Generating Returns through Volatility
- The VIX
- Leveraged ETFs
- Life Cycle of a Trade
