Option trading- Pricing and Volatility strategies and Techniques PDF presents the detail and practical information that professional option traders need, whether they’re using options to hedge, manage money, arbitrage, or engage in structured finance deals.
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Category: Options
Author: EUAN SINCLAIR
Language: English
Free download link: At the end of the post
Introduction
An A to Z options trading guide for the new millennium and the new economy
Written by professional trader and quantitative analyst Euan Sinclair, Option Trading is a comprehensive guide to this discipline covering everything from historical background, contract types, and market structure to volatility measurement, forecasting, and hedging techniques.
This comprehensive guide presents the detail and practical information that professional option traders need, whether they’re using options to hedge, manage money, arbitrage, or engage in structured finance deals. It contains information essential to anyone in this field, including option pricing and price forecasting, the Greeks, implied volatility, volatility measurement and forecasting, and specific option strategies.
- Explains how to break down a typical position, and repair positions
- Other titles by Sinclair: Volatility Trading
- Addresses the various concerns of the professional options trader
Option trading will continue to be an important part of the financial landscape. This book will show you how to make the most of these profitable products, no matter what the market does.
From the Inside Flap
Successful trading, in general, is difficult and options specifically can be compli-cated. In most cases, those who do well have an ability to focus on good processes and let the results take care of themselves.Nobody is more familiar with this situation than professional trader and quantitative analyst Euan Sinclair. In Option Trading, he’s broken down the process into the parts you need to thrive–an understanding of market structure, knowledge of the instruments you trade, a way to capture an edge, and a methodology for managing risk.
Written with the serious trader in mind, this comprehensive guide opens by exploring options, both historically and conceptually, and then uses the no-arbitrage principle to introduce option pricing–examining both static arbitrage relationships and the dynamic hedging approach. With this critical background in hand, the largest and most substantial part of the book addresses how to actually trade options.
Along the way, you’ll gain an in-depth understanding of:
- The various option strategies that can be implemented, from puts and calls to strangles, straddles, and butterflies
- How to measure and forecast realized volatility, the nature and behavior of implied volatility, and what it takes to successfully trade the two
- The concept of expected value, the general idea of hedging, and the importance of trade sizing
- The strategies behind market making
- The essential aspects of risk management in option trading
- And much more
Option trading is an important part of the financial landscape. This book will show you how to make the most of these profitable products, no matter what the market does.
Table of Contents- Option trading- Pricing and Volatility strategies and Techniques PDF
Preface xi
Professional Trading xii
The Role of Mathematics xiv
The Structure of this Book xvi
Acknowledgments xix
CHAPTER 1 History 1
Summary 6
CHAPTER 2 Introduction to Options 7
Options 9
Specifications for an Option Contract 9
Uses of Options 11
Market Structure 14
Summary 20
CHAPTER 3 Arbitrage Bounds for Option Prices 21
American Options Compared to European Options 25
Absolute Maximum and Minimum Values 25
Summary 39
CHAPTER 4 Pricing Models 41
General Modeling Principles 42
Choice of Dependent Variables 45
The Binomial Model 48
The Black-Scholes-Merton (BSM) Model 55
Summary 61
CHAPTER 5 The Solution of theBlack-Scholes-Merton (BSM) Equation 63
Delta 67
Gamma 72
Theta 76
Vega 80
Summary 88
CHAPTER 6 Option Strategies 89
Forecasting and Strategy Selection 89
The Strategies 93
Summary 116
CHAPTER 7 Volatility Estimation 117
Defining and Measuring Volatility 119
Forecasting Volatility 129
Volatility in Context 132
Summary 136
CHAPTER 8 Implied Volatility 137
The Implied Volatility Curve 138
Parameterizing and Measuring the Implied Volatility Curve 142
The Implied Volatility Curve as a Function of Expiration 145
Implied Volatility Dynamics 146
Summary 151
CHAPTER 9 General Principles of Trading and Hedging 153
Edge 154
Hedging 156
Trade Sizing and Leverage 158
Scalability and Breadth 163
Summary 164
CHAPTER 10 Market Making Techniques 165
Market Structure 166
Market Making 169
Trading Based on Order-Book Information 181
Summary 189
CHAPTER 11 Volatility Trading 191
Hedging 192
Hedging in Practice 193
The P/L Distribution of Hedged Option Positions 203
Summary 213
CHAPTER 12 Expiration Trading 215
Pinning 215
Pin Risk 219
Forward Risk 221
Exercising the Wrong Options 221
Irrelevance of the Greeks 223
Expiring at a Short Strike 224
Summary 225
CHAPTER 13 Risk Management 227
Example of Position Repair 228
Inventory 232
Delta 234
Gamma 234
Vega 238
Correlation 240
Rho 242
Stock Risk: Dividends and Buy-in Risk 242
The Early Exercise of Options 243
Summary 248
Conclusion 249
APPENDIX A Distributions 253
Example 253
Moments and the “Shape” of Distributions 254
APPENDIX B Correlation 263
Glossary 271
Index 285
Reviews- Option trading- Pricing and Volatility strategies and Techniques PDF
One of the best books on Options trading- There are a handful of must-read books on Options trading and this book and the author’s earlier book Volatility Trading are 2 must-reads for anyone interested in trading options. The book can be useful for anyone -from the beginner to the professional. While the author has kept the options mathematics to a minimal level, it does require some basic level of comfort with mathematical concepts. Sinclair is clear, concise and very practitioner oriented. It’s rare to see a trader write (and write well) a book for traders. I enjoyed the chapters on Pin Risk and Options Market-Making, topics not discussed in many options books.- V. Ghazarian
Beats the learned treatise among the crowd of professional options traders, Natenberg’s ‘Options Volatility and Pricing’, and establishes a new precedent for the definitive text on professional options pricing and trading.
A must-read for all options traders, new and old.– Dr_seanathan
About the author
EUAN SINCLAIR is an option trader with fifteen years of professional trading experience. He specializes in the design and implementation of quantitative trading strategies. Sinclair is currently a proprietary option trader for Bluefin Trading, where he trades based on quantitative models of his own design. He holds a PhD in theoretical physics from the University of Bristol. Sinclair is also the author of the Wiley title Volatility Trading.
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