Options Math for Traders: How to Pick the Best Option Strategies for Your Market Outlook | by Scott Nations | ISBN: 9781118164372 | Option Pricing Models and Implied Volatility. Calendar Spreads. Vertical Spreads.

Options Math for Traders—How to Pick the Best Option Strategies for Your Market Outlook 9781118164372


A practical guide to the math behind options and how that knowledge can improve your trading performance

No book on options can guarantee success, but if a trader understands and utilizes option math effectively, good things are going to happen. The idea behind Options Math for Traders + Website is to help retail option traders understand some of the basic tenants and enduring relationships of options, and option math, that professional and institutional traders rely on every day. This book skillfully highlights those strategies that are inherently superior from an option math point of view and explains what drives that superiority while also examining why some strategies are inherently inferior.

The material is explained without complex equations or technical jargon. The goal is to give you a solid conceptual foundation of options behavior so you can make more informed decisions when choosing an option strategy for your market outlook. Topics covered include the volatility premium, because over time, options will cost more than they are ultimately worth; skew, wherein far out of the money put options may seem cheap from an absolute term, but are very expensive in relative terms; and the acceleration in option price erosion. The book also has a companion Website, which includes links to those sites that can scan for the best strategies discussed in the book.

  • Explains, in a non-technical manner, the mathematical properties of options so that traders can better select the right options strategy for their market outlook
  • Companion Website contains timely tools that allow you to continue to learn in a hands-on fashion long after closing the book
  • Written by top options expert Scott Nations

Most independent traders have an imperfect understanding of the math behind options pricing. With Options Math for Traders + Website as your guide, you'll gain valuable lessons in this area and discover how this information can improve your trading performance.

List Price: $80.00 USD
New From: $43.19 USD In Stock
Used from: $42.07 USD In Stock


by Scott Nations
2012
ISBN: 9781118164372

Most independent traders have an imperfect understanding of the math behind options pricing. With this practical resource as your guide, you’ll gain valuable lessons in this area and discover how this information can improve your trading performance.

Options Math for Traders, + Website: How To Pick the Best Option Strategies for Your Market Outlook

Product Description
A practical guide to the math behind options and how that knowledge can improve your trading performance

No book on options can guarantee success, but if a trader understands and utilizes option math effectively, good things are going to happen. The idea behind Options Math for Traders + Website is to help retail option traders understand some of the basic tenants and enduring relationships of options, and option math, that professional and institutional traders rely on every day. This book skillfully highlights those strategies that are inherently superior from an option math point of view and explains what drives that superiority while also examining why some strategies are inherently inferior.

The material is explained without complex equations or technical jargon. The goal is to give you a solid conceptual foundation of options behavior so you can make more informed decisions when choosing an option strategy for your market outlook. Topics covered include the volatility premium, because over time, options will cost more than they are ultimately worth; skew, wherein far out of the money put options may seem cheap from an absolute term, but are very expensive in relative terms; and the acceleration in option price erosion. The book also has a companion Website, which includes links to those sites that can scan for the best strategies discussed in the book.

  • Explains, in a non-technical manner, the mathematical properties of options so that traders can better select the right options strategy for their market outlook
  • Companion Website contains timely tools that allow you to continue to learn in a hands-on fashion long after closing the book
  • Written by top options expert Scott Nations

Most independent traders have an imperfect understanding of the math behind options pricing. With Options Math for Traders + Website as your guide, you'll gain valuable lessons in this area and discover how this information can improve your trading performance.

item_dimensions: 9.3 x 0.9 x 6.3 inches; 1 pounds
shipping_weight: 1 pounds
ASIN: 1118164377

$43.19

Table of Contents
Options Math for Traders—How to Pick the Best Option Strategies for Your Market Outlook

Preface
OVERVIEW
THE PHENOMENA
THE GOAL
THE STRATEGIES
THE TAKEAWAYS
JUST ONE EQUATION
ABOUT THE WEBSITE
GETTING STARTED IN OPTION TRADING
Part One – The Basics

Chapter 1 – The Basics
OVERVIEW
OPTION SPECIFICS
DESCRIBING AN OPTION
OPTION COST AND VALUE
HOW TIME VALUE CHANGES
DOING THE SAME FOR PUTS
MONEYNESS

Chapter 2 – Direction, Magnitude, and Time
OVERVIEW
MAGNITUDE AND TIME ARE RELATED
UP AND DOWN AREN’T THE ONLY POSSIBILITIES
THE PATH MATTERS
VOLATILITY COMBINES THESE ISSUES

Chapter 3 – Volatility
OVERVIEW
RISK IS VOLATILITY
INVESTORS DEMAND A RISK PREMIUM, REDUCING THE PRICE OF RISKY ASSETS
VOLATILITY IS THE STANDARD DEVIATION OF RETURNS
STANDARD DEVIATION TELLS US WHAT RANGE OF OUTCOMES TO EXPECT
STANDARD DEVIATION OF RETURNS IS VOLATILITY
TYPES OF VOLATILITY

Chapter 4 – Option Pricing Models and Implied Volatility
OVERVIEW
IT’S AN OPTION PRICING MODEL, NOT AN EQUATION FOR OPTION VALUES
A BLACK-SCHOLES EXAMPLE
THE ASSUMPTIONS
INPUTS TO THE BLACK-SCHOLES OPTION PRICING MODEL
IMPLIED VOLATILITY
THE SENSITIVITY OF OPTION PRICES TO CHANGES IN THE INPUTS
Part Two – Applications and Results

Chapter 5 – The Volatility Risk Premium
OVERVIEW
VOLATILITY RISK PREMIUM, THE WHAT
THE ASSUMPTIONS, THE WHY OF THE VOLATILITY RISK PREMIUM
THE VOLATILITY RISK PREMIUM—HOW MUCH
HOW TO THINK ABOUT THE VOLATILITY RISK PREMIUM
THE VOLATILITY RISK PREMIUM BY ASSET CLASS
THE VOLATILITY RISK PREMIUM OVER TIME

Chapter 6 – Implied Volatility and Skew
OVERVIEW
IMPLIED VOLATILITY BY STRIKE PRICE
OPTION SKEW, THE WHEN
OPTION SKEW, THE WHERE
ASSUMPTIONS, THE FIRST WHY OF OPTION SKEW
ASSUMPTIONS AND OTHER REASONS
DETERMINING IF ONE OPTION IS A GOOD HEDGE FOR ANOTHER OPTION
SKEW, THE HOW MUCH

Chapter 7 – Time Value and Decay
OVERVIEW
TIME VALUE BY STRIKE PRICE
THETA—THE MEASURE OF DAILY OPTION TIME VALUE EROSION
OPTION PRICE EROSION DOESN’T HAPPEN IN A STRAIGHT LINE
OPTION PRICE EROSION, THE WHAT
ANOTHER WAY OF LOOKING AT DAILY EROSION

Chapter 8 – The Bid/Ask Spread
OVERVIEW
WHAT DO WE MEAN BY “THE MARKET”?
MARKET MAKERS
BID/ASK SPREAD, THE WHAT
DELTA’S IMPACT ON BID/ASK SPREADS
WIDER BID/ASK SPREADS
THE BID/ASK SPREAD WHEN THERE’S MORE COMPETITION
EQUITY OPTIONS
THE BID/ASK FOR OPTION SPREADS
THE BID/ASK OF MULTI-LEGGED SPREADS
WHAT’S THE REAL FAIR VALUE OF AN OPTION BASED ON THE BID/ASK?

Chapter 9 – Volatility Slope
OVERVIEW
THE CORRELATION BETWEEN MARKET PRICES AND IMPLIED VOLATILITY
THE VOLATILITY SLOPE, THE WHY
THE ASYMMETRY
VOLATILITY SLOPE AND SKEW ARE RELATED
Part Three – The Trades

Chapter 10 – Covered Calls
OVERVIEW
COVERED CALLS ARE BEST FOR STOCKS YOU ALREADY OWN AND WANT TO KEEP
THE PHENOMENA AND COVERED CALLS
BREAKEVEN POINTS
BREAKEVEN POINTS AND RATES OF RETURN
USING COVERED CALLS FOR DOWNSIDE PROTECTION
IF OUR STOCK RALLIES
SELECTING THE COVERED CALL
COVERED CALLS AND DAILY PRICE EROSION
COVERED CALLS AND THE VOLATILITY RISK PREMIUM
PLACING YOUR COVERED CALL ORDER
FOLLOW-UP ACTION
GETTING ASSIGNED
ROLLING

Chapter 11 – Selling Puts
OVERVIEW
SELLING PUTS IS BEST FOR STOCKS YOU WANT TO OWN AT A DISCOUNT
THE PHENOMENA
SELLING PUTS IS IDENTICAL TO A BUYWRITE
SELLING PUTS TO BUY STOCK AT A DISCOUNT
ROLLING

Chapter 12 – Calendar Spreads
OVERVIEW
MAXIMUM PROFIT AND LOSS
THE PHENOMENA
LONG CALENDAR SPREADS AND IMPLIED VOLATILITY
CALENDAR SPREAD PAYOFF AT FRONT-MONTH EXPIRATION
NEUTRAL, BULLISH, AND BEARISH CALENDAR SPREADS
CALENDAR SPREAD PROFITABILITY WITHOUT MOVEMENT
CALENDAR SPREAD SENSITIVITIES
FOLLOW-UP
BULLISH BECOMES BEARISH…
CATALYSTS

Chapter 13 – Risk Reversal
OVERVIEW
A RISK REVERSAL AND SKEW
WHEN TO USE A RISK REVERSAL
USING A RISK REVERSAL
RISK REVERSALS PRIOR TO EXPIRATION
WHEN A RISK REVERSAL DOESN’T WORK
RISK REVERSALS AND LONGER-DATED EXPIRATIONS
FOLLOW-UP ACTION

Chapter 14 – Vertical Spreads
OVERVIEW
BREAKEVENS
SKEW AND VERTICAL SPREADS
VERTICAL SPREAD RISK AND REWARD
LONG PUT SPREADS AND SHORT CALLS SPREADS ARE ALIKE
LONG PUT SPREADS AND SHORT CALL SPREADS ARE DIFFERENT
THE WIDTH OF THE SPREAD VERSUS THE COST
THE GREEKS
IMPLIED VOLATILITY AND THE COST OF VERTICAL SPREADS
VERTICAL SPREADS—HOW AGGRESSIVE?
CALL SPREADS, SKEW, AND THE PROBLEM OF THE “TROUGH”
FOLLOW-UP ACTION

Appendix
STANDARD DEVIATION
REALIZED VOLATILITY
VOLATILITY FOR DIFFERENT TIME PERIODS
THE BLACK-SCHOLES FORMULA EXTENDED, PUTS AND THE GREEKS
LINEAR INTERPOLATION
ANNUALIZING YIELD



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