Hedging Options » Volatility

Option Volatility & Pricing: Advanced Trading Strategies and Techniques [Kindle Edition]

admin — Fri, 23 Jul 2010 10:34:28 +0000

One of the most widely read books among active option traders around the world, Option Volatility & Pricing has been completely updated to reflect the most current developments and trends in option products and trading strategies. Featuring: Pricing models Volatility considerations Basic and advanced trading strategies Risk management techniques And more! Written in a clear, easy-to-understand fashion, Option Volatility & Pricing points out the key concepts essential to successful trading. Drawing on his experience as a professional trader, author Sheldon Natenberg examines both the theory and reality of option trading. He presents the foundations of option theory explaining how this theory can be used to identify and exploit trading opportunities. Option Volatility & Pricing teaches you to use a wide variety of trading strategies and shows you how to select the strategy that best fits your view of market conditions and individual risk tolerance. New s (more…)

The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets [Hardcover]

admin — Wed, 14 Jul 2010 15:21:31 +0000

“Jeff’s analysis is unique, at least among academic derivatives textbooks. I would definitely use this material in my derivatives class, as I believe students would benefit from analyzing the many dimensions of Jeff’s trading strategies. I especially found the material on trading the earnings cycle and discussion of how to insure against price jumps at known events very worthwhile.” —DR. ROBERT JENNINGS, Professor of Finance, Indiana University Kelley School of Business “This is not just another book about options trading. The author shares a plethora of knowledge based on 20 years of trading experience and study of the financial markets. Jeff explains the myriad of complexities about options in a manner that is insightful and easy to understand. Given the growth in the options and derivatives markets over the past five years, this book is required reading for any serious investor or anyone in the financial service industries.” —MICHAEL P. O’ (more…)

Mastering Option Trading Volatility Strategies with Sheldon Natenberg

admin — Wed, 23 Jun 2010 17:25:48 +0000

No description for this product could be found, but have a look over at Amazon for reviews and other information.

Option Volatility & Pricing: Advanced Trading Strategies and Techniques [Hardcover]

admin — Thu, 17 Jun 2010 16:46:39 +0000

Volatility Trading, + CD-ROM (Wiley Trading) (Hardcover)

admin — Thu, 24 Dec 2009 21:19:32 +0000

Book Description

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. Your goal, Sinclair explains, must be clearly defined and easily expressed-if you cannot explain it in one sentence, you probably aren’t completely clear about what it is. The same applies to your statistical edge. If you do not know exactly what your edge is, you shouldn’t trade. He shows h (more…)

Commodity Options: Trading and Hedging Volatility in the World??Ts Most Lucrative Market (Kindle Edition)

admin — Mon, 21 Dec 2009 14:33:22 +0000

This is the eBook version of the printed book. If the print book includes a CD-ROM, this content is not included within the eBook version.Don’t Miss out on Today’s Hottest Trading Arena: Commodity Options! Investors worldwide are discovering the enormous opportunities available through commodity options trading. However, because commodities have differing underlying characteristics from equities, commodity options behave differently as well. In this book, two of the field’s most respected analysts present strategies built from the ground up for commodity options. Carley Garner and Paul Brittain begin with a quick primer on how commodity options work, how they evolved, and why conventional options strategies often fail in the commodity options markets. Next, using detailed examples based on their own extensive research, they show how to leverage the unique characteristics of commodity options in your own trades. You’ll walk through trades from “top to bott (more…)

Commodity Options: Trading and Hedging Volatility in the World’s Most Lucrative Market (Hardcover)

admin — Fri, 18 Dec 2009 11:50:27 +0000

Don’t Miss out on Today’s Hottest Trading Arena: Commodity Options! “The authors have written the definitive work on trading commodity options. Their in-depth knowledge of this subject is legendary among industry professionals and expert traders alike, and their ability to relay their knowledge through text, pictures, and the spoken word is unparalleled in our industry.” –Lan Turner, CEO, Gecko Software, Inc. “This book captures the realities of commodity option trading in a simple and easy- to-read presentation that will be beneficial for traders of all sizes and skill levels.” –Chris Jarvis, CFA, CMT, Caprock Risk Management, LLC “Even the most experienced investors often overlook the fact that options on futures are fundamentally different from options on stocks. This book fills that gap and sets the record straight with clear and concise descriptions that are easy to understand. Guaranteed to become a true source of value creation for anyone interested in tradin (more…)

Options Trading Strategies – Book Review – Sheldon Natenberg, Option Volatility and Pricing

admin — Tue, 15 Dec 2009 10:24:23 +0000

As with most books on the topic of how to trade options, the amount of material to get through can be daunting. For example, with Sheldon Natenberg’s Option Volatility & Pricing, it is about 418 pages to digest. There are adequate reader reviews on Amazon and Google Book Search, to help you decide if you will get the book. For those who have just started or are about to read the book, I’ve summarized the core concepts in the larger and essential chapters to help you get through them quicker.The number on the right of the title of the chapter is the number of pages contained within that chapter. It is not the page number. The percentages represent how much each chapter makes up of the 418 pages in total, excluding appendices.1 The Language of Options. 12, 2.87%.2 Elementary Strategies. 22, 5.26%.3 Introduction to Theoretical Pricing Models. 16, 3.83%.4 Volatility. 30, 7.18%.5 Using an Option’s Theoretical Value. 14, 3.35%.6 Option Values and Changing Market Conditions. 32, 7.66%.7 Introduction to Spreading. 10, 2.39%.8 Volatility Spreads. 36, 8.61%.9 Risk Considerations. 26, 6.22%.10 Bull and Bear Spreads. 14, 3.35%.11 Option Arbitrage. 28, 6.70%.12 Early Exercise of American Options. 16, 3.83%.13 Hedging with Options. 16, 3.83%.14 Volatility Revisited. 28, 6.70%.15 Stock Index Futures and Options. 30, 7.18%.16 Intermarket Spreading. 22, 5.26%.17 Position Analysis. 32, 7.66%.18 Models and the Real World. 34, 8.13%.Focus on chapters 4, 6, 8, 9, 11, 14, 15, 17 and 18, which makes up about 66% of the book. These chapters are relevant for practical trading purposes. Here are the key points for these focus chapters, which I’m summarizing from a retail option trader’s perspective.4 Volatility. Volatility as a measure of speed in context of price in/stability for a given product in a particular market. Despite its shortcomings, the definition of volatility still defaults to these assumptions of the Black-Scholes Model: 1. Price changes of a product remain random and cannot be engineered, making it impossible to predict price direction prior to its movement. 2. Percent changes in the product’s price are normally distributed. 3. As the product’s price percent changes are counted as continuously compounded, the product’s price on expiry will become lognormally distributed. 4. The lognormal distribution’s mean (mean reversion) is to be found in the product’s forward price.6 Option Values and Changing Market Conditions. Use of Delta in its 3 equivalent forms: Rate of Change, Hedge Ratio & Theoretical Equivalent of the Position. Treatment of Gamma as an option’s curvature to explain the opposite relationship of OTM/ITM strikes to the ATM strike having the highest Gamma. Dealing with the Theta-Gamma inverse relationship, as well as Theta being intertwined synthetically as long decay and short premium with Implied Volatility, as measured by Vega.8 Volatility Spreads. Emphasis is on the sensitivities of a Ratio Back Spread, Ratio Vertical Spread, Straddle/Strangle, Butterfly, Calendar, and Diagonal to Interest Rates, Dividends and the 4 Greeks with specific attention on the effects of Gamma and Vega.9 Risk Considerations. A sobering reminder to select spreads with the lowest aggregate risk spread versus the highest probability of profit. Aggregate Risk as measured in terms of Delta (Directional Risk), Gamma (Curvature Risk), Theta (Decay/Premium Risk) and Vega (Volatility Risk).11 Option Arbitrage. Synthetic positions are explained in terms of manufacturing an equivalent risk profile of the original spread, using a mix of single options, other spreads and the underlying product. Clear caution that transforming trades into Conversions, Reversals and Adjustments are not risk-free; but, may raise the trade’s nearer-term risks even though the longer-term net risk is lowered. There are material differences in the cash flows of being long options versus short options, arising from the Skew bias unique to a product and the interest rate built into Calls making them disparate against Puts.14 Volatility Revisited. Different expiry cycles between near-term versus longer-term options creates a longer-term volatility average, a mean volatility. When volatility rises above its mean, there is relative certainty that it will revert to its mean. Likewise, mean reversion is highly likely as volatility drops below its mean. Gyration around the mean is an identifiable characteristic. Discernible volatility traits make it essential to forecast volatility in 30 day periods: 30-60-90-120 days, give the typical term to be short credit spreads between 30-45 and long debit spreads between 90-120 days. Reconciling Implied Volatility as a measure of consensus volatility of all buyer/sellers for a given product, with inconsistencies in Historical Volatility and predictive constraints of Future Volatility.15 Stock Index Futures and Options. Effective use of Indexing to remove single stock risk. Distinct treatment of the risks for stock-settled Indexes (including impact of dividend/exercise) separate from cash-settled Indices (absent of dividend/exercise). Explains logic for Theoretically Pricing the options on Stock Index Futures, in addition to pricing the Futures contract itself, to determine which is economically viable to trade – the Futures contract itself or the options on the Futures.17 Position Analysis. A more robust method than just eye balling the Delta, Gamma, Vega and Theta of a position is to use the relevant Theoretical Pricing model (Bjerksund-Stensland, Black-Scholes, Binomial) to scenario test for changes in dates (daily/weekly) before expiration, % changes in Implied Volatility and price changes within and near +/- 1 Standard Deviation. These factors feeding the scenario tests, once graphed, reveal the relative ratios of Delta/Gamma/Vega/Theta risks in terms of their proportionality impacting the Theoretical Price of specific strikes making up the construction of a spread.18 Models and the Real World. Addresses the weaknesses of these core assumptions used in a traditional pricing model: 1. Markets are not frictionless: buying/selling an underlying contract has restrictions in terms of tax implications, limitation on funding and transaction costs. 2. Interest rates are variable, not constant over the option’s life. 3. Volatilty is variable, not constant over the options’ life. 4. Trading is not continous 24/7 – there are exchange holidays resulting in gaps in price changes. 5. Volatility is linked to Theoretical Price of the underlying contract, not independent of it. 6. Percentage of price changes in an underlying contract does not result in a lognormal distribution of underlying prices at distribution due to Skew & Kurtosis.To conclude, reading these chapters is not academic. Understanding techniques discussed in the chapters must enable you to answer the following key questions. In the total inventory of your trading account, if you are …