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- Product code: 252711
- ISBN: 0132354691,
ISBN13: 9780132354691,
304 pages, hardback
Published by FT Prentice Hall on 2008
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Description of Volatility Edge in Options Trading: The New Technical Strategies for Trading Options in Un... |
In The Volatility Edge, options trader and researcher Jeff Augen introduces a breakthrough strategy for fully leveraging the immense opportunities that arise from market volatility. Drawing on more than a decade of never-before-published research, Augen provides new analytical techniques and visual tools that every experienced options trader can use. For the first time, Augen bridges the gap between pricing theory mathematics and market realities, providing new data visualization tools and analytical techniques for studying historical price change behaviour, making more profitable trading decisions, and systematically managing and mitigating risk.
Augen covers topics addressed in no other options trading book, introducing innovative new strategies for exploiting rising volatility that precedes most earnings releases; trading the monthly options expiration cycle; leveraging put:call price parity disruptions; understanding the impact of weekend and end-of-month timeframes on bid-ask spreads; and using the CBOE Volatility Index (VIX) more effectively.Unlike conventional guides, The Volatility Edge doesn't rely on oversimplified, artificial positional analyses: it reflects ongoing changes in the prices of underlying securities, market volatility, and time decay.
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Contents of Volatility Edge in Options Trading: The New Technical Strategies for Trading Options in Unstable Markets |
Acknowledgments . . . xi
About the Author . . . xii
Preface . . . xiii
A Guide for Readers . . . xv
1. Introduction . . . 1
Price Discovery and Market Stability . . . 6
Practical Limitations of Technical Charting . . . 9
Background and Terms . . . 12
Securing a Technical Edge . . . 16
Endnote . . . 21
2. Fundamentals of Option Pricing . . . 23
Random Walks and Brownian Motion . . . 25
The Black-Scholes Pricing Model . . . 29
The Greeks: Delta, Gamma, Vega, Theta, and Rho . . . 32
Binomial Trees: An Alternative Pricing Model . . . 42
Summary . . . 45
Further Reading . . . 45
Endnotes . . . 46
3. Volatility . . . 47
Volatility and Standard Deviation . . . 48
Calculating Historical Volatility . . . 50
Profiling Price Change Behavior . . . 61
Summary . . . 75
Further Reading . . . 76
4. General Considerations . . . 77
Bid-Ask Spreads . . . 79
Volatility Swings . . . 82
Put-Call Parity Violations . . . 89
Liquidity . . . 91
Summary . . . 95
Further Reading . . . 97
Endnotes . . . 97
5. Managing Basic Option Positions . . . 99
Single-Sided Put and Call Positions . . . 100
Straddles and Strangles . . . 118
Covered Calls and Puts . . . 137
Synthetic Stock . . . 143
Summary . . . 146
Further Reading . . . 148
Endnotes . . . 149
6. Managing Complex Positions . . . 151
Calendar and Diagonal Spreads . . . 152
Ratios . . . 162
Ratios That Span Multiple Expiration Dates . . . 175
Complex Multipart Trades . . . 182
Hedging with the VIX . . . 195
Summary . . . 202
Further Reading . . . 203
Endnotes . . . 204
7. Trading the Earnings Cycle . . . 205
Exploiting Earnings-Associated Rising Volatility . . . 207
Exploiting Post-Earnings Implied Volatility Collapse . . . 216
Summary . . . 222
Endnote . . . 223
8. Trading the Expiration Cycle . . . 225
The Final Trading Day . . . 226
The Days Preceding Expiration . . . 237
Summary . . . 240
Further Reading . . . 242
Endnotes . . . 242
9. Building a Toolset . . . 243
Some Notes on Data Visualization Tools . . . 245
Database Infrastructure Overview . . . 248
Data Mining . . . 252
Statistical Analysis Facility . . . 258
Trade Modeling Facility . . . 264
Summary . . . 268
Endnotes . . . 269
Index . . . 271
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