Book description
Praise forTrading Options inTurbulent Markets
"Of the five basic variables that drive option pricing models, the volatility assumption is far and away the most impactful. Mr. Shover's definitive work, exploring all aspects of the world of volatility, truly is a gift to the investing public."
—William Floersch, President and CEO, Fortis Clearing Americas, LLC
"There are a myriad of 'Options 101' books for the beginning options investor and painfully lengthy and dry graduate-level books on advanced strategies. Larry has found the sweet spot in between, offering a great book on intermediate option strategies. I can heartily endorse Trading Options in Turbulent Markets as THE book for investors seeking to enhance their knowledge of derivative trading and createa low-risk, high-return investment game plan."
—Jon "Doctor J" Najarian, cofounder, tradeMONSTER.com
"Mr. Shover has managed to marry a thoughtful presentation of volatility as it relates to options pricing and options trading, with a narrative that goes beyond the purely theoretical and focuses on the practical implications of this 'measure of instability' (first line of Chapter 2) for those who use options. In light of the tumultuous events that have churned the global financial markets, a read on the practical implications of volatility seems prudent for all who choose to employ options."
—Pat Arbor, Chairman Emeritus, CBOT, and current Director ofFirst Chicago Bank and Trust
"Shover's book offers valuable insights from his real-life experience in trading volatile markets."
—Jim Bittman, Senior Instructor, The Options Institute at CBOE, and author of Trading Options as a Professional
"Larry Shover was a successful options trader in his years at CRT and a valuablemember of our team. His book is both accessible and informative, and its pages are filled with insights gained from many years of experience. Larry writes with passion and acumen, making this a book that will do more than just sit on your shelf."
—Joseph Ritchie, founder, Chicago Research and Trading Group (CRT); founder and Chairman, Fox River Financial Resources, Inc.; andCEO, Rwanda Development Board
Table of contents
- Copyright
- Acknowledgments
- Introduction
-
1. Understanding the Relationship between Market Turbulence and Option Volatility
- 1. Managing Risk and Uncertainty with Options
-
2. Making Sense of Volatility in Options Trading
- 2.1. Volatility as an Asset Class
- 2.2. Analyzing Volatility with Implied Volatility
- 2.3. What Does Implied Volatility Reveal?
- 2.4. Making Trading Decisions Based on the Disparity between Historical and Implied Volatility
- 2.5. Appreciating Volatility for All It Is Worth
- 2.6. How Volatility Really Works on the Trading Floor
- 2.7. Volatility and Uncertainty: Lessons for the Irrational Option Trader
- 2.8. Varieties of Option Volatility Trading
- 3. Working with Volatility to Make Investment Decisions
- 4. Volatility Skew: Smile or Smirk?
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2. Understanding Option Volatility and its Relationship to Option Greeks, Personal Decision Making, and Odds Creation
- 5. Extreme Volatility and Option Delta
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6. Smoke and Mirrors: Managing Gamma through Volatile Markets
- 6.1. Gamma and Volatility
- 6.2. Managing Positive Gamma during a High-Volatility Environment
- 6.3. The Bad News: There's Always More than Meets the Eye
- 6.4. Practical Considerations for Managing Long Gamma in a High-Volatility Environment
- 6.5. Managing Negative Gamma in a High-Volatility Environment
- 6.6. Practical Considerations of Negative Gamma in High Volatility
- 6.7. Gamma and Volatility with Respect to Time Structure
- 6.8. Summary
-
7. Price Explosion: Volatility and Option Vega
- 7.1. The Relationship between Implied Volatility and Vega
- 7.2. Implied Volatility: Price Analogy
- 7.3. Option Vega and Time
- 7.4. Option Vega and Its Greek Cousins
- 7.5. Option Vega Implications
- 7.6. Don't Underestimate the Relationship between Volatility and Option Vega
- 7.7. Volatility and Vega Insensitivity
- 7.8. Important Concepts When Applying Option Vega in a Volatile Marketplace
- 7.9. Summary
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8. Sand in the Hourglass: Volatility and Option Theta
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8.1. Balancing Time Decay with Volatility: Mistakes Traders Make
- 8.1.1. Mistake #1: When Traders Don't Fully Understand the Effect of Time Decay
- 8.1.2. Mistake #2: When Traders Underestimate or Misinterpret Volatility and Its Effect on Theta
- 8.1.3. Buying Options (Negative Theta) in a High-Volatility Environment
- 8.1.4. If You Happen to Be in the Fortunate Position of Owning Options during an Upward Movement in Volatility, This Is What You Should Expect to Happen
- 8.1.5. If You Happen to Be in the Unfortunate Position of Being Short Options during an Upward Movement in Volatility, This Is What You Should Expect to Happen
- 8.2. Volatility and Theta: What Every Investor Needs to Know
-
8.1. Balancing Time Decay with Volatility: Mistakes Traders Make
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3. Ten Proven Strategies to Employ in Uncertain Times
- 9. Preparing for Trading Using Volatility Strategies
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10. The Buy-Write, or the Covered Call
- 10.1. The Buy-Write (Covered Call) Defined
- 10.2. An Example of the Covered Call Strategy
- 10.3. The Theory and Reality of the Covered Call
- 10.4. Covered Call Writing and Implied Volatility
- 10.5. Implied Volatility in Practice
- 10.6. Managing Contracts in a Time of High Volatility or a Falling Market
- 10.7. Effective Call Writing in a Volatile Market
- 11. Covering the Naked Put
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12. The Married Put: Protecting Your Profit
- 12.1. Volatility, Downside Risk, and the Case for Portfolio Insurance
- 12.2. Why Buy High Volatility?
- 12.3. The Married Put
- 12.4. How and When to Use a Married Put
- 12.5. Example of When to Use a Married Put
- 12.6. The Married Put: Limiting Loss, Neutralizing Volatility, and Unleashing Upside Potential
- 12.7. Married Put: A Real-Life Illustration
- 13. The Collar: Sleep at Night
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14. The Straddle and Strangle: The Risks and Rewards of Volatility-Sensitive Strategies
- 14.1. The Buying or Selling of Premium
- 14.2. Properties of Straddles and Strangles
- 14.3. Comparing Straddles and Strangles
- 14.4. How to Compare Historical and Implied Volatility
- 14.5. The Impact of Correlation and Implied Volatility Skew
- 14.6. An Alternative to the Naked Volatility Sale via the Straddle/Strangle: The Strangle Swap
-
15. The Vertical Spread and Volatility
- 15.1. Introduction to the Vertical Spread
- 15.2. A Trader's Reasoning for Trading a Vertical Spread
- 15.3. Designing Your Vertical Spread
- 15.4. Vertical Spreads and Greek Exposure
- 15.5. Vertical Spreads as a Pure Volatility Play
- 15.6. Comparing Volatility's Effect on Vertical Spreads
- 15.7. Summary: Comparing Vertical Spreads and Implied Volatility
-
16. Calendar Spreads: Trading Theta and Vega
- 16.1. Calendar Spreading—Trading Time
- 16.2. Risks and Rewards of the Calendar Spread
- 16.3. A Calendar Spread with a Bullish Expectation
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16.4. Considerations and Observations for Calendar Spreads and Volatility
- 16.4.1. 1. Time Value and Volatility in Calendar Spreads Are not Necessarily Connected
- 16.4.2. 2. Implied Volatility Affects Calendar Spreads Mostly with At-the-Money Options
- 16.4.3. 3. Avoid Assuming Too Much about Front-Month versus Back-Month Vega
- 16.4.4. 4. At Extreme Prices for an Underlying Stock, Differences in Parity Appear
- 16.4.5. 5. Pay Attention to Long-Term Trends in Volatility
- 16.4.6. 6. Don't Put Too Much Emphasis on Greek Values
- 17. Ratio Spreading: Trading Objectives Tailor Made
- 18. The Butterfly Spread
- 19. The Iron Butterfly and the Condor
Product information
- Title: Trading Options in Turbulent Markets: Master Uncertainty through Active Volatility Management
- Author(s):
- Release date: August 2010
- Publisher(s): Wiley
- ISBN: 9781576603604
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