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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.
About the Author
SCOTT NATIONS is President and CIO of NationsShares, a division of Fortress Trading, Inc. Previously, he was head trader for Sovereign Capital, a proprietary trading firm, and a floor trader at both the Chicago Board of Trade and the Chicago Mercantile Exchange. Nations is also a financial engineer, creating, testing, patenting, and licensing a number of sophisticated option-based and option-enhanced products including the Nations Enhanced Covered Call Index; the Nations Enhanced Collar Index; the Nations Option Levered Index; and the Nations VolDex. He appears on CNBC several times each week and serves as one of the regular panelists on CNBC's weekly Options Action show.
Table of Contents
PART ONE The Basics
CHAPTER 1 The Basics 3
CHAPTER 2 Direction, Magnitude, and Time 17
CHAPTER 3 Volatility 25
CHAPTER 4 Option Pricing Models and Implied Volatility 37
PART TWO The Phenomena
CHAPTER 5 The Volatility Risk Premium 51
CHAPTER 6 Implied Volatility and Skew 63
CHAPTER 7 Time Value and Decay 77
CHAPTER 8 The Bid/Ask Spread 87
CHAPTER 9 Volatility Slope 105
PART THREE The Trades
CHAPTER 10 Covered Calls 115
CHAPTER 11 Selling Puts 151
CHAPTER 12 Calendar Spreads 171
CHAPTER 13 Risk Reversal 197
CHAPTER 14 Vertical Spreads 217