Option Trading: Pricing and Volatility Strategies and Techniques (Hardcover)

Preface.

Professional Trading.

The Role of Mathematics.

The Structure of this Book.

Acknowledgments.

Chapter 1 History.

Summary.

Chapter 2 Introduction to Options.

Options.

Specifications for an Option Contract.

Uses of Options.

Market Structure.

Summary.

Chapter 3 Arbitrage Bounds for Option Prices.

American Options Compared to European Options.

Absolute Maximum and Minimum Values.

Summary.

Chapter 4 Pricing Models.

General Modeling Principles.

Choice of Dependent Variables.

The Binomial Model.

The Black-Scholes-Merton (BSM) Model.

Summary.

Chapter 5 The Solution of the Black-Scholes-Merton (BSM) Equation.

Delta.

Gamma.

Theta.

Vega.

Summary.

Chapter 6 Option Strategies.

Forecasting and Strategy Selection.

The Strategies.

Summary.

Chapter 7 Volatility Estimation.

Defining and Measuring Volatility.

Forecasting Volatility.

Volatility in Context.

Summary.

Chapter 8 Implied Volatility.

The Implied Volatility Curve.

Parameterizing and Measuring the Implied Volatility Curve.

The Implied Volatility Curve as a Function of Expiration.

Implied Volatility Dynamics.

Summary.

Chapter 9 General Principles of Trading and Hedging.

Edge.

Hedging.

Trade Sizing and Leverage.

Scalability and Breadth.

Summary.

Chapter 10 Market Making Techniques.

Market Structure.

Market Making.

Trading Based on Order-Book Information.

Summary.

Chapter 11 Volatility Trading.

Hedging.

Hedging in Practice.

The P/L Distribution of Hedged Option Positions.

Summary.

Chapter 12 Expiration Trading.

Pinning.

Pin Risk.

Forward Risk.

Exercising the Wrong Options.

Irrelevance of the Greeks.

Expiring at a Short Strike.

Summary.

Chapter 13 Risk Management.

Example of Position Repair.

Inventory.

Delta.

Gamma.

Vega.

Correlation.

Rho.

Stock Risk: Dividends and Buy-in Risk.

The Early Exercise of Options.

Summary.

Conclusion.

Appendix A Distributions.

Example.

Moments and the “Shape” of Distributions.

Appendix B Correlation.

Glossary.

Index.