Option Trading: Pricing and Volatility Strategies and Techniques

Preface

Traders tend to be a pragmatic group. They are largely interested in results. Actually some become so focused on results that it becomes a hindrance. This tendency can be a handicap, as the way to achieve good results is to focus on good processes and let the results take care of themselves. Good traders learn this.

But good traders are still intellectually parsimonious. They want to know what works, but seldom more than the minimum they need. When I’m feeling uncharitable I regard this as characteristic of the uncurious, dull people I have had the misfortune to work with, and indeed some were like this. More realistically, however, this is less a reflection on the traders themselves, most of who were intelligent people with a wide range of interests, and more a reflection on the nature of trading.

Trading is complex, changeable, and potentially emotionally draining. Once a trader has learned a sensible, statistically valid, profitable method, he is better off concentrating on exploiting it rather than continuing to experiment.

So a perfectly valid question when told something is “Why do I need to know this?” As a general answer, in the case where everything else is equal, the trader with more knowledge will make more money. He will also be more easily able to adapt to new markets and opportunities.

It is possible to trade options successfully without knowing about the Black-Scholes-Merton model, or any other pricing model. But for the traders who do this, everything is ...