Twisted Christmas

WHAT EVERY OPTION TRADER NEEDS TO KNOW. THE ONE BOOK EVERY TRADER SHOULD OWN. The bestselling Option Volatility Pricing has made Sheldon Natenberg a widely recognized authority in the option industry. At firms around the world, the text is often the first book that new professional traders are given to learn the trading strategies and risk management techniques required for success in option markets. Now, in this revised, updated, and expanded second edition, this thirty-year trading professional presents the most comprehensive guide to advanced trading strategies and techniques now in print. Covering a wide range of topics as diverse and exciting as the market itself, this text enables both new and experienced traders to delve in detail into the many aspects of option markets, including: *The foundations of option theory *Dynamic hedging *Volatility and directional trading strategies *Risk analysis *Position management *Stock index futures and options *Volatility contracts Clear, concise, and comprehensive, the second edition of Option Volatility Pricing is sure to be an important addition to every option trader's library--as invaluable as Natenberg's acclaimed seminars at the world's largest derivatives exchanges and trading firms. You'll learn how professional option traders approach the market, including the trading strategies and risk management techniques necessary for success. You'll gain a fuller understanding of how theoretical pricing models work. And, best of all, you'll learn how to apply the principles of option evaluation to create strategies that, given a trader's assessment of market conditions and trends, have the greatest chance of success. Option trading is both a science and an art. This book shows how to apply both to maximum effect. -- Provided by publisher Cover Title Page Copyright Page Contents Preface 1 Financial Contracts Buying and Selling Notional Value of a Forward Contract Settlement Procedures Market Integrity 2 Forward Pricing Physical Commodities (Grains, Energy Products, Precious Metals, etc.) Stock Bonds and Notes Foreign Currencies Stock and Futures Options Arbitrage Dividends Short Sales 3 Contract Specifications and Option Terminology Contract Specifications Option Price Components 4 Expiration Profit and Loss Parity Graphs 5 Theoretical Pricing Models The Importance of Probability A Simple Approach The Black-Scholes Model 6 Volatility Random Walks and Normal Distributions Mean and Standard Deviation Forward Price as the Mean of a Distribution Volatility as a Standard Deviation Scaling Volatility for Time Volatility and Observed Price Changes A Note on Interest-Rate Products Lognormal Distributions Interpreting Volatility Data 7 Risk Measurement I The Delta The Gamma The Theta The Vega The Rho Interpreting the Risk Measures 8 Dynamic Hedging Original Hedge 9 Risk Measurement II Delta Theta Vega Gamma Lambda (Λ) 10 Introduction to Spreading What Is a Spread? Option Spreads 11 Volatility Spreads Straddle Strangle Butterfly Condor Ratio Spread Christmas Tree Calendar Spread Time Butterfly Effect of Changing Interest Rates and Dividends Diagonal Spreads Choosing an Appropriate Strategy Adjustments Submitting a Spread Order 12 Bull and Bear Spreads Naked Positions Bull and Bear Ratio Spreads Bull and Bear Butterflies and Calendar Spreads Vertical Spreads 13 Risk Considerations Volatility Risk Practical Considerations How Much Margin for Error? Dividends and Interest What Is a Good Spread? 14 Synthetics Synthetic Underlying Synthetic Options Using Synthetics in a Spreading Strategy Iron Butterflies and Iron Condors 15 Option Arbitrage Options on Futures Locked Futures Markets Options on Stock Arbitrage Risk 16 Early Exercise of American Options Arbitrage Boundaries Early Exercise of Call Options on Stock Early Exercise of Put Options on Stock Impact of Short Stock on Early Exercise Early Exercise of Options on Futures Protective Value and Early Exercise Pricing of American Options Early Exercise Strategies Early Exercise Risk 17 Hedging with Options Protective Calls and Puts Covered Writes Collars Complex Hedging Strategies Hedging to Reduce Volatility Portfolio Insurance 18 The Black-Scholes Model n(x) and N(x) A Useful Approximation The Delta The Theta Maximum Gamma, Theta, and Vega 19 Binomial Option Pricing A Risk-Neutral World Valuing an Option The Delta The Gamma The Theta Vega and Rho The Values of u and d Gamma Rent American Options Dividends 20 Volatility Revisited Historical Volatility Volatility Forecasting Implied Volatility as a Predictor of Future Volatility Forward Volatility 21 Position Analysis Some Thoughts on Market Making Stock Splits 22 Stock Index Futures and Options What Is an Index? Stock Index Futures Stock Index Options 23 Models and the Real World Markets Are Frictionless Interest Rates Are Constant over the Life of an Option Volatility Is Constant over the Life of the Option Trading Is Continuous Expiration Straddles Volatility Is Independent of the Price of the Underlying Contract Underlying Prices at Expiration Are Lognormally Distributed Skewness and Kurtosis 24 Volatility Skews Modeling the Skew Skewness and Kurtosis Skewed Risk Measures Shifting the Volatility Skewness and Kurtosis Strategies Implied Distributions 25 Volatility Contracts Realized Volatility Contracts Implied Volatility Contracts Trading the VIX Replicating a Volatility Contract Volatility Contract Applications Afterword: A Final Thought A: Glossary of Option Terminology A B C D E F G H I J K L M N O P R S T U V W Z B: Some Useful Math Rate-of-Return Calculations Normal Distributions and Standard Deviation Volatility Index A B C D E F G H I J K L M N O P Q R S T U V W Y Z