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
