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Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits, 2nd Edition

Book Description

A top options trader details a practical approach for pricing and trading options in any market condition

The options market is always changing, and in order to keep up with it you need the greeks—delta, gamma, theta, vega, and rho—which are the best techniques for valuing options and executing trades regardless of market conditions. In the Second Edition of Trading Options Greeks, veteran options trader Dan Pasarelli puts these tools in perspective by offering fresh insights on option trading and valuation.

An essential guide for both professional and aspiring traders, this book explains the greeks in a straightforward and accessible style. It skillfully shows how they can be used to facilitate trading strategies that seek to profit from volatility, time decay, or changes in interest rates. Along the way, it makes use of new charts and examples, and discusses how the proper application of the greeks can lead to more accurate pricing and trading as well as alert you to a range of other opportunities.

  • Completely updated with new material

  • Information on spreads, put-call parity and synthetic options, trading volatility, and advanced option trading is also included

  • Explores how to exploit the dynamics of option pricing to improve your trading

Having a comprehensive understanding of the greeks is essential to long-term options trading success. Trading Options Greeks, Second Edition shows you how to use the greeks to find better trades, effectively manage them, and ultimately, become more profitable.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Foreword
  7. Preface
  8. Acknowledgments
  9. Part I: The Basics of Option Greeks
    1. Chapter 1: The Basics
      1. Contractual Rights and Obligations
      2. ETFs, Indexes, and HOLDRs
      3. Strategies and At-Expiration Diagrams
    2. Chapter 2: Greek Philosophy
      1. Price vs. Value: How Traders Use Option-Pricing Models
      2. Delta
      3. Gamma
      4. Theta
      5. Vega
      6. Rho
      7. Where to Find Option Greeks
      8. Caveats with Regard to Online Greeks
      9. Thinking Greek
      10. Notes
    3. Chapter 3: Understanding Volatility
      1. Historical Volatility
      2. Implied Volatility
      3. Expected Volatility
      4. Implied Volatility and Direction
      5. Calculating Volatility Data
      6. Volatility Skew
      7. Note
    4. Chapter 4: Option-Specific Risk and Opportunity
      1. Long ATM Call
      2. Long OTM Call
      3. Long ITM Call
      4. Long ATM Put
      5. Finding the Right Risk
      6. It’s All About Volatility
      7. Options and the Fair Game
      8. Note
    5. Chapter 5: An Introduction to Volatility-Selling Strategies
      1. Profit Potential
    6. Chapter 6: Put-Call Parity and Synthetics
      1. Put-Call Parity Essentials
      2. American-Exercise Options
      3. Synthetic Stock
      4. Synthetic Stock Strategies
      5. Theoretical Value and the Interest Rate
      6. A Call Is a Put
      7. Note
    7. Chapter 7: Rho
      1. Rho and Interest Rates
      2. Rho and Time
      3. Considering Rho When Planning Trades
      4. Trading Rho
      5. Notes
    8. Chapter 8: Dividends and Option Pricing
      1. Dividend Basics
      2. Dividends and Option Pricing
      3. Dividends and Early Exercise
      4. Inputting Dividend Data into the Pricing Model
  10. Part II: Spreads
    1. Chapter 9: Vertical Spreads
      1. Vertical Spreads
      2. Verticals and Volatility
      3. The Interrelations of Credit Spreads and Debit Spreads
      4. Building a Box
      5. Verticals and Beyond
      6. Note
    2. Chapter 10: Wing Spreads
      1. Condors and Butterflies
      2. Taking Flight
      3. Keys to Success
      4. Greeks and Wing Spreads
      5. Directional Butterflies
      6. Constructing Trades to Maximize Profit
      7. The Retail Trader versus the Pro
      8. Notes
    3. Chapter 11: Calendar and Diagonal Spreads
      1. Calendar Spreads
      2. Trading Volatility Term Structure
      3. Diagonals
      4. The Strength of the Calendar
      5. Note
  11. Part III: Volatility
    1. Chapter 12: Delta-Neutral Trading
      1. Direction Neutral versus Direction Indifferent
      2. Delta Neutral
      3. Trading Implied Volatility
      4. Conclusions
    2. Chapter 13: Delta-Neutral Trading
      1. Gamma Scalping
      2. Art and Science
      3. Gamma, Theta, and Volatility
      4. Gamma Hedging
      5. Smileys and Frowns
    3. Chapter 14: Studying Volatility Charts
      1. Nine Volatility Chart Patterns
      2. Note
  12. Part IV: Advanced Option Trading
    1. Chapter 15: Straddles and Strangles
      1. Long Straddle
      2. Short Straddle
      3. Synthetic Straddles
      4. Long Strangle
      5. Short Strangle
      6. Note
    2. Chapter 16: Ratio Spreads and Complex Spreads
      1. Ratio Spreads
      2. How Market Makers Manage Delta-Neutral Positions
      3. Trading Skew
      4. When Delta Neutral Isn’t Direction Indifferent
      5. Managing Multiple-Class Risk
    3. Chapter 17: Putting the Greeks into Action
      1. Trading Option Greeks
      2. Choosing between Strategies
      3. Managing Trades
      4. The HAPI: The Hope and Pray Index
      5. Adjusting
  13. About the Author
  14. Index