Trading Options Greeks How Time, Volatility, and Other Pricing Factors Drive Profits
by Passarelli, Dan; Brodsky, William J.Edition: 2nd
Format: Hardcover
Pub. Date: 2012-10-02
Publisher(s): Bloomberg Press
Other versions by this Author
-
Free Shipping On All Orders!*
Free economy shipping applies to all orders shipped to residential addresses. Orders shipped to campus receive free standard shipping. Free shipping offers do not apply to Marketplace items.
-
eCampus.com Device Compatibility Matrix
Click the device icon to install or view instructions
Apple iOS | iPad, iPhone, iPod
Android Devices | Android Tables & Phones OS 2.2 or higher | *Kindle Fire
Windows 10 / 8 / 7 / Vista / XP
Mac OS X | **iMac / MacbookEnjoy offline reading with these devicesiPad, iPhone, iPod
Android 2.2 +Kindle FireWindows
10 / 8 / 7 / Vista / XPMac
List Price: $90.00
Buy New
Special Order. We will make every effort to obtain this item but cannot guarantee stock or timing.
$89.91
Rent Book
Select for Price
Rent Digital
$67.20*
Used Book
We're Sorry
Sold Out
How Marketplace Works:
- This item is offered by an independent seller and not shipped from our warehouse
- Item details like edition and cover design may differ from our description; see seller's comments before ordering.
- Sellers much confirm and ship within two business days; otherwise, the order will be cancelled and refunded.
- Marketplace purchases cannot be returned to eCampus.com. Contact the seller directly for inquiries; if no response within two days, contact customer service.
- Additional shipping costs apply to Marketplace purchases. Review shipping costs at checkout.
Summary
Mastering Option Greeks is a necessity for effective trading. The Greeks - delta, gamma, theta, and - are measurements of option properties. Essentially they allow traders to determine how sensitive a specific trade is to price fluctuations of the underlying instrument, volatility fluctuations, and the passage of time. Former floor trader Dan Passarelli explains the Greeks in a straightforward, non-academic fashion. He then shows how the Greeks can be used to facilitate trading strategies that seek to profit from volatility, time decay, or changes in interest rates. The new edition will be completely updated, with fresh examples. Moreover, new material will be added on new options products, including weekly options, quarterly options, VIX options, and currency options.
Author Biography
DAN PASSARELLI is the founder and CEO of Market Taker Mentoring, a leading options education firm that provides personalized, one-on-one mentoring for option traders and online classes. He began his trading career on the floor of the Chicago Board Options Exchange (CBOE) as an equity options market maker and also traded agricultural options and futures on the floor of the Chicago Board of Trade (now part of the CME Group). In 2005, Passarelli joined CBOE's Options Institute and began teaching both basic and advanced trading concepts to retail traders, brokers, institutional traders, financial planners and advisors, money managers, and market makers. He has appeared on FOX Business News and other business television programs and contributes to financial publications such as TheStreet.com, SFO.com, and the CBOE's blog. Passarelli is the author of the first edition of Trading Option Greeks and The Market Taker's Edge.
Table of Contents
Foreword xiii
Preface xv
Acknowledgments xix
PART I: THE BASICS OF OPTION GREEKS
CHAPTER 1 The Basics 3
Contractual Rights and Obligations 3
ETFs, Indexes, and HOLDRs 9
Strategies and At-Expiration Diagrams 10
CHAPTER 2 Greek Philosophy 23
Price vs. Value: How Traders Use Option-Pricing Models 24
Delta 25
Gamma 32
Theta 38
Vega 42
Rho 46
Where to Find Option Greeks 51
Caveats with Regard to Online Greeks 52
Thinking Greek 53
Notes 53
CHAPTER 3 Understanding Volatility 55
Historical Volatility 55
Implied Volatility 58
Expected Volatility 61
Implied Volatility and Direction 67
Calculating Volatility Data 68
Volatility Skew 69
Note 72
CHAPTER 4 Option-Specific Risk and Opportunity 73
Long ATM Call 73
Long OTM Call 79
Long ITM Call 83
Long ATM Put 84
Finding the Right Risk 89
It’s All About Volatility 89
Options and the Fair Game 93
Note 94
CHAPTER 5 An Introduction to Volatility-Selling Strategies 95
Profit Potential 95
CHAPTER 6 Put-Call Parity and Synthetics 113
Put-Call Parity Essentials 113
American-Exercise Options 119
Synthetic Stock 120
Synthetic Stock Strategies 124
Theoretical Value and the Interest Rate 132
A Call Is a Put 133
Note 133
CHAPTER 7 Rho 135
Rho and Interest Rates 135
Rho and Time 137
Considering Rho When Planning Trades 138
Trading Rho 142
Notes 143
CHAPTER 8 Dividends and Option Pricing 145
Dividend Basics 145
Dividends and Option Pricing 147
Dividends and Early Exercise 148
Inputting Dividend Data into the Pricing Model 152
PART II: SPREADS
CHAPTER 9 Vertical Spreads 163
Vertical Spreads 164
Verticals and Volatility 178
The Interrelations of Credit Spreads and Debit Spreads 180
Building a Box 181
Verticals and Beyond 183
Note 183
CHAPTER 10 Wing Spreads 185
Condors and Butterflies 185
Taking Flight 185
Keys to Success 194
Greeks and Wing Spreads 195
Directional Butterflies 195
Constructing Trades to Maximize Profit 198
The Retail Trader versus the Pro 205
Notes 207
CHAPTER 11 Calendar and Diagonal Spreads 209
Calendar Spreads 209
Trading Volatility Term Structure 218
Diagonals 228
The Strength of the Calendar 233
Note 233
PART III: VOLATILITY
CHAPTER 12 Delta-Neutral Trading: Trading Implied Volatility 237
Direction Neutral versus Direction Indifferent 237
Delta Neutral 238
Trading Implied Volatility 241
Conclusions 247
CHAPTER 13 Delta-Neutral Trading: Trading Realized Volatility 253
Gamma Scalping 254
Art and Science 258
Gamma, Theta, and Volatility 259
Gamma Hedging 259
Smileys and Frowns 265
CHAPTER 14 Studying Volatility Charts 269
Nine Volatility Chart Patterns 269
Note 282
PART IV: ADVANCED OPTION TRADING
CHAPTER 15 Straddles and Strangles 285
Long Straddle 285
Short Straddle 293
Synthetic Straddles 298
Long Strangle 299
Short Strangle 302
Note 306
CHAPTER 16 Ratio Spreads and Complex Spreads 307
Ratio Spreads 307
How Market Makers Manage Delta-Neutral Positions 316
Trading Skew 321
When Delta Neutral Isn’t Direction Indifferent 322
Managing Multiple-Class Risk 323
CHAPTER 17 Putting the Greeks into Action 325
Trading Option Greeks 326
Choosing between Strategies 326
Managing Trades 329
The HAPI: The Hope and Pray Index 329
Adjusting 330
About the Author 333
Index 335
An electronic version of this book is available through VitalSource.
This book is viewable on PC, Mac, iPhone, iPad, iPod Touch, and most smartphones.
By purchasing, you will be able to view this book online, as well as download it, for the chosen number of days.
Digital License
You are licensing a digital product for a set duration. Durations are set forth in the product description, with "Lifetime" typically meaning five (5) years of online access and permanent download to a supported device. All licenses are non-transferable.
More details can be found here.
A downloadable version of this book is available through the eCampus Reader or compatible Adobe readers.
Applications are available on iOS, Android, PC, Mac, and Windows Mobile platforms.
Please view the compatibility matrix prior to purchase.