Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

The options market allows savvy investors to assume risk in a way that can be very profitable, if the right techniques are used with the proper insight. In Trading Options as a Professional, veteran floor trader James Bittman provides both full-time and professional traders with a highly practical blueprint for maximizing profits in the global options market.

This peerless guide helps you think like a market maker, arms you with the latest techniques for trading and managing options, and guides you in honing your proficiency at entering orders and anticipating strategy performance. Most importantly, it gives you access to one of the world's leading educators and commentators as he candidly defines the seven trading areas that are essential for successful options traders to master:

  • Option price behavior, including the Greeks
  • Volatility
  • Synthetic relationships
  • Arbitrage strategies
  • Delta-neutral trading
  • Setting bid and ask prices
  • Risk management

You will benefit from Bittman's exceptional understanding of volatility, his perceptive examples from the real world, and the dozens of graphs and tables that illustrate his strategies and techniques. Each chapter is a complete, step-by-step lesson, and, collectively, give you the best toolbox of profit-making solutions on the options trading floor.

In addition, Trading Options as a Professional comes with Op-Eval Pro, a powerful software that enables you to analyze your trades before you make them by calculating implied volatility, graphing simple and complex options strategies, and saving analyses to review later.

Don't be left guessing on the sidelines--trade with the confidence of a market maker by following the road map to higher profits in Trading Options as a Professional.

1111948203
Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

The options market allows savvy investors to assume risk in a way that can be very profitable, if the right techniques are used with the proper insight. In Trading Options as a Professional, veteran floor trader James Bittman provides both full-time and professional traders with a highly practical blueprint for maximizing profits in the global options market.

This peerless guide helps you think like a market maker, arms you with the latest techniques for trading and managing options, and guides you in honing your proficiency at entering orders and anticipating strategy performance. Most importantly, it gives you access to one of the world's leading educators and commentators as he candidly defines the seven trading areas that are essential for successful options traders to master:

  • Option price behavior, including the Greeks
  • Volatility
  • Synthetic relationships
  • Arbitrage strategies
  • Delta-neutral trading
  • Setting bid and ask prices
  • Risk management

You will benefit from Bittman's exceptional understanding of volatility, his perceptive examples from the real world, and the dozens of graphs and tables that illustrate his strategies and techniques. Each chapter is a complete, step-by-step lesson, and, collectively, give you the best toolbox of profit-making solutions on the options trading floor.

In addition, Trading Options as a Professional comes with Op-Eval Pro, a powerful software that enables you to analyze your trades before you make them by calculating implied volatility, graphing simple and complex options strategies, and saving analyses to review later.

Don't be left guessing on the sidelines--trade with the confidence of a market maker by following the road map to higher profits in Trading Options as a Professional.

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Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

by James Bittman
Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

Trading Options as a Professional: Techniques for Market Makers and Experienced Traders

by James Bittman

eBook

$62.96 

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Overview

The options market allows savvy investors to assume risk in a way that can be very profitable, if the right techniques are used with the proper insight. In Trading Options as a Professional, veteran floor trader James Bittman provides both full-time and professional traders with a highly practical blueprint for maximizing profits in the global options market.

This peerless guide helps you think like a market maker, arms you with the latest techniques for trading and managing options, and guides you in honing your proficiency at entering orders and anticipating strategy performance. Most importantly, it gives you access to one of the world's leading educators and commentators as he candidly defines the seven trading areas that are essential for successful options traders to master:

  • Option price behavior, including the Greeks
  • Volatility
  • Synthetic relationships
  • Arbitrage strategies
  • Delta-neutral trading
  • Setting bid and ask prices
  • Risk management

You will benefit from Bittman's exceptional understanding of volatility, his perceptive examples from the real world, and the dozens of graphs and tables that illustrate his strategies and techniques. Each chapter is a complete, step-by-step lesson, and, collectively, give you the best toolbox of profit-making solutions on the options trading floor.

In addition, Trading Options as a Professional comes with Op-Eval Pro, a powerful software that enables you to analyze your trades before you make them by calculating implied volatility, graphing simple and complex options strategies, and saving analyses to review later.

Don't be left guessing on the sidelines--trade with the confidence of a market maker by following the road map to higher profits in Trading Options as a Professional.


Product Details

ISBN-13: 9780071642835
Publisher: McGraw Hill LLC
Publication date: 11/09/2008
Sold by: Barnes & Noble
Format: eBook
Pages: 304
File size: 4 MB

About the Author

James B. Bittman is Senior Instructor at the Chicago Board Options Exchange's Options Institute. He is also author of Options for the Stock Investor (155-73887-25)

Table of Contents

Acknowledgments xv

Introduction: Learning to Trade Options as a Professional xvii

Chapter 1 Option Market Fundamentals 1

Fundamental Terms 1

The Market-Definition 1 10

The Market-Definition 2 11

National Best Bid and Best Offer 13

Margin Accounts and Related Terms 16

Profit/Loss Diagrams 19

Summary 29

Chapter 2 Operating the Op-Eval Pro Software 31

Overview of Program Features 31

Installing the Software 32

Choices of Pricing Formulas 34

Features of Op-Eval Pro 35

The Single Option Calculator 36

Calculating Implied Volatility 39

The Spread Positions Screen 39

Theoretical Graph Screen 42

Theoretical Price Table 44

The Portfolio Screen 45

The Distribution Screen 46

Summary 48

Chapter 3 The Basics of Option Price Behavior 49

The Insurance Analogy 49

Option Pricing Formulas 53

Call Values and Stock Prices 54

Put Values and Stock Prices 56

Call Values Relative to Put Values 59

Option Values and Strike Price 60

Option Values and Time to Expiration 62

Time Decay Is Complicated 64

Time Decay and Volatility 64

Option Values and Interest Rates 67

Option Values and Dividends 69

Option Values and Volatility 69

Extreme Volatility 71

Dynamic Markets 71

Three-Part Forecasts 72

Trading Scenarios 72

Summary 75

Chapter 4 The Greeks 77

Overview 77

Delta 78

Gamma 80

Vega 83

Theta 85

Rho 87

How the Greeks Change 89

How Delta Changes 92

How Gamma Changes 99

How Vega Changes 104

How Theta Changes 108

How Rho Changes 111

Position Greeks 118

Summary 131

Chapter 5 Synthetic Relationships 135

Synthetic Relationships 135

Synthetic Long Stock 137

Synthetic Short Stock 139

Synthetic Long Call141

Synthetic Short Call 144

Synthetic Long Put 146

Synthetic Short Put 148

When Stock Price [not equal] Strike Price 151

The Put-Call Parity Equation 153

Applying the Effective Stock Price Concept 155

The Role of Interest Rates and Dividends 156

Summary 160

Chapter 6 Arbitrage Strategies 163

Arbitrage-the Concept 163

The Conversion 165

Pin Risk 167

Pricing a Conversion 168

Pricing a Conversion with Dividends 173

Pricing Conversions by Strike Price 176

The Concept of Relative Pricing 177

The Reverse Conversion 178

Pricing a Reverse Conversion 181

Pricing a Reverse Conversion with Dividends 185

Box Spreads 188

The Long Box Spread 188

Pricing a Long Box Spread 193

The Short Box Spread 196

Pricing a Short Box Spread 199

Summary 203

Chapter 7 Volatility 205

Volatility Defined 206

Historic Volatility 206

Another Look at Daily Returns 213

Realized Volatility 216

The Meaning of "30 Percent Volatility" 216

Converting Annual Volatility to Different Time Periods 217

Calendar Days Versus Trading Days 220

Implied Volatility 222

Expected Volatility 230

Using Volatility 231

"Overvalued" and "Undervalued" 232

An Alternative Focus 234

Volatility Skews 234

Summary 238

Chapter 8 Delta-Neutral Trading: Theory and Reality 241

Delta-Neutral Defined 242

The Theory of Delta-Neutral Trading 247

Delta-Neutral Trading-Long Volatility Example 248

Delta-Neutral-Trading-Short Volatility Example 256

Simulated "Real" Delta-Neutral Trade 1 263

Simulated "Real" Delta-Neutral Trade 2 267

Delta-Neutral Trading-Opportunities and Risks for Speculators 272

Delta-Neutral Trading-Opportunities and Risks for Market Makers 275

Summary 277

Chapter 9 Setting Bid-Ask Prices 279

The Theory of the Bid-Ask Spread 280

The Need to Adjust Bid and Ask Prices 284

The Process of Adjusting Bid and Ask Prices 285

The Limit on Adjusting Bid and Ask Prices 288

Estimating Option Prices as Volatility Changes 290

Expressing Bid and Ask Prices in Volatility Terms 292

Trading Exercises Introduced 294

Exercise 1: Buying Calls Delta-Neutral 296

Exercise 2: Creating a Butterfly Spread in Three Trades 298

Exercise 3: Creating a Reverse Conversion in Two Trades 302

Exercise 4: Creating a Long Box Spread in Two Trades 306

Summary 310

Chapter 10 Managing Position Risk 311

Calculating Position Risks 312

Managing Directional Risk with Delta 314

Vertical Spreads versus Outright Long Options 320

Vertical Spreads-How the Risks Change 321

Greeks of Delta-Neutral Positions 327

Neutralizing Position Greeks 329

Neutralizing Greeks when Interest Rates Are Positive 333

Establishing Risk Limits 337

Summary 340

Epilogue 343

Index 345

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