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Option Trading: Pricing and Volatility Strategies and Techniques [Hardcover]

Euan Sinclair
2.0 out of 5 stars  See all reviews (1 customer review)
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Book Description

June 21 2010 Wiley Trading (Book 445)

An A to Z options trading guide for the new millennium and the new economy

Written by professional trader and quantitative analyst Euan Sinclair, Option Trading is a comprehensive guide to this discipline covering everything from historical background, contract types, and market structure to volatility measurement, forecasting, and hedging techniques.

This comprehensive guide presents the detail and practical information that professional option traders need, whether they're using options to hedge, manage money, arbitrage, or engage in structured finance deals. It contains information essential to anyone in this field, including option pricing and price forecasting, the Greeks, implied volatility, volatility measurement and forecasting, and specific option strategies.

  • Explains how to break down a typical position, and repair positions
  • Other titles by Sinclair: Volatility Trading
  • Addresses the various concerns of the professional options trader

Option trading will continue to be an important part of the financial landscape. This book will show you how to make the most of these profitable products, no matter what the market does.


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Product Description

From the Inside Flap

Successful trading, in general, is difficult and options specifically can be compli-cated. In most cases, those who do well have an ability to focus on good processes and let the results take care of themselves.

Nobody is more familiar with this situation than professional trader and quantitative analyst Euan Sinclair. In Option Trading, he's broken down the process into the parts you need to thrive—an understanding of market structure, knowledge of the instruments you trade, a way to capture an edge, and a methodology for managing risk.

Written with the serious trader in mind, this comprehensive guide opens by exploring options, both historically and conceptually, and then uses the no-arbitrage principle to introduce option pricing—examining both static arbitrage relationships and the dynamic hedging approach. With this critical background in hand, the largest and most substantial part of the book addresses how to actually trade options.

Along the way, you'll gain an in-depth understanding of:

  • The various option strategies that can be implemented, from puts and calls to strangles, straddles, and butterflies
  • How to measure and forecast realized volatility, the nature and behavior of implied volatility, and what it takes to successfully trade the two
  • The concept of expected value, the general idea of hedging, and the importance of trade sizing
  • The strategies behind market making
  • The essential aspects of risk management in option trading
  • And much more

Option trading is an important part of the financial landscape. This book will show you how to make the most of these profitable products, no matter what the market does.

From the Back Cover

Praise for Option Trading

"In this era of unprecedented volatility, it has become imperative to understand the intricacies of options markets. This book gives an unyielding trader's perspective on options trading, from the basics of option pricing to the finer points of risk management. I highly recommend it as the best book of its kind on the market."
—Peter Carr, PhD; Head of Quantitative Financial Research, Bloomberg LP, Director of the Masters in Math Finance Program, Courant Institute, NYU

"A no-nonsense instruction manual for becoming a professional options trader. This is not a theoretical account of what the author thinks markets ought to do, nor does it promise trading ideas so good you can ignore risk management, hedging, position repair, and other basic professional skills. It merely explains how professionals turn real ideas into real money."
—Aaron Brown, Risk manager at AQR Capital Management and author of The Poker Face of Wall Street

"With the release of Option Trading, Euan Sinclair has once again set a new higher standard for options literature and provides a welcome companion to his excellent Volatility Trading. Sinclair is a professional options trader and emphasizes that making profits among intelligent competitive traders requires techniques and processes that must lead to a definable, tractable, and executable edge. His most useful contribution to a field crowded with poor treatments is his insistence on not oversimplifying or waving away the option trading process because it takes accuracy, work, and thought. Yet Sinclair's clarity and technical mastery give focus where previous authors have wallowed in obscurantism to camouflage ignorance and lack of practical experience. Sinclair's Option Trading is the finest work on the subject available and makes all previous treatments obsolete."
—James N. Ward, Professor of Finance, The American University of Paris, and European Head of High Yield Investments, AXA Investment Managers–Paris


Inside This Book (Learn More)
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Most helpful customer reviews
2.0 out of 5 stars For Mathematicians July 12 2010
By Warren
Format:Hardcover|Verified Purchase
This book deals more with options and how they are priced based on mathematical equations rather than on strategies to take advantage of market situations. The author also covers the history of the option market, the greeks but just misses the meat which I was looking for. Great book for math students. I skipped over most of that part. This was the wrong book for myself but may work better for a class room of students learning the theory. Obviously the writer is highly intelligent, but would make a better reading book if he could relate to a wider population selection.
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Amazon.com: 4.1 out of 5 stars  8 reviews
23 of 24 people found the following review helpful
4.0 out of 5 stars Welcome to 1989 Aug. 3 2010
By Dimitri Shvorob - Published on Amazon.com
Format:Hardcover
This is a case where I would have liked to leave a blank rating: I simply don't know enough to grade competently. My problem with this book is that, with a few exceptions (hedging bands of chapter 11; range-based vol estimation), it could have been written twenty-plus years ago, when Black, Scholes, Merton and Rubinstein had published their papers, and the volatility smile was known but not yet addressed by academics. Academics moved on - have practitioners followed?

If yes, I would penalize the book for being out-of-date and not 'fessing up to it. I would have been quite receptive to an argument that the main ideas can be demonstrated in the oldest, fundamental model, but the more recent stuff really needs to be in the book as well.

If not, no complaints, apart from insisting on more substantial chapters 9 and 11. Once we emerge from textbook options stuff after chapter 8 - including the titular "strategies", in chapter 6 - there are only four chapters left, and one is taken up by textbook-again discussion of market-making. Less of familiar material, more of your thoughts, please.

This is a thorough and well-written discussion of options in the Black-Scholes world. (This means European equity options - no American options or exotics, no fixed-income etc.) 85% of the material was not new to me, and seen in Hull, and CFA and FRM curricula. I would wish to check if the remaining 15% had shown up in similar books, but even in that case the author deserves credit for bringing it all together, and first-rate presentation throughout. If one is looking for a comprehensive introductory-to-intermediate book on options, this is a reliable choice.
6 of 7 people found the following review helpful
5.0 out of 5 stars Fantastic Book April 29 2011
By Farah Haddadin - Published on Amazon.com
Format:Hardcover
This book has been a great read. I truly think that this book is a replacement for any of the outdated "option trading" books (like Natenberg). The author discusses and clarifies many topics from option risks all the way to dealing with expiration problems.

I highly recommend this book to all students who have completed their degrees in financial mathematics or finanical engeering. Whether you are fresh out of school or a junior quant (or an experienced quant), this is a fun and very useful book to read.

The only downside of this book is that it has very few errors. They are very minor that any reader with common sense can catch.

But without a doubt, this is a five-star book.
5 of 6 people found the following review helpful
5.0 out of 5 stars One of the best books on Options trading Jan. 18 2011
By V. Ghazarian - Published on Amazon.com
Format:Hardcover|Verified Purchase
There are a handful of must-read books on Options trading and this book and the author's earlier book Volatility Trading are 2 must-reads for anyone interested in trading options. The book can be useful for anyone -from the beginner to the professional. While the author has kept the options mathematics to a minimal level, it does require some basic level of comfort with mathematical concepts. Sinclair is clear, concise and very practitioner oriented. It's rare to see a trader write (and write well) a book for traders. I enjoyed the chapters on Pin Risk and Options Market-Making, topics not discussed in many options books.
3 of 4 people found the following review helpful
5.0 out of 5 stars Definitive Options Source Dec 20 2010
By Praeses - Published on Amazon.com
Format:Hardcover|Verified Purchase
Beats the learned treatise among the crowd of professional options traders, Natenberg's 'Options Volatility and Pricing', and establishes a new precedent for the definitive text on professional options pricing and trading.

A must-read for all options traders, new and old.
12 of 18 people found the following review helpful
5.0 out of 5 stars Another solid title June 11 2010
By George Gruschow - Published on Amazon.com
Format:Hardcover|Verified Purchase
My friends and I were really surprised reading his first book.. "Hey, wait, this trading book doesn't suck. The author actually has a clue." He repeats here, but at a more accessible level for most people.

If I were running an options desk, this would be the intro course for every new member. Even it's asides on non-options markets are better than almost any other book you'll find.
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