Trading in options by regular folks looking for big returns has been catching on and I am not sure why. Are they really trying to use options to alter the risk of their retirement portfolios - either lowering the risk to ensure the preservation of capital or to add volatility with the design of increasing returns? Probably not. The average person is probably acting as a speculator and placing bets. For the market, this kind of behavior is a good thing because it adds noise that allows the professionals greater opportunities to profit. Now, think about what that means. You know the old saying about sitting down and a poker table and if you can't spot the patsy that it's you? Remember, options are an area of the market where there are only winners and losers. These are instruments where one side wins and the other side loses. However, in the right hands they are very important and useful financial instruments.
This book is not a textbook on option theory, pricing, or how to use them in the context of lowering or increasing risk in a portfolio. It is a basic how to text for buying and selling options as speculative investments. The author, W. Edward Olmstead, is a math professor at Northwestern University and teaches a course in options. His experience with the topic shows because the text is clear, easy to read and to grasp. That is a fine accomplishment because learning how options work can be a mind bending experience for the first timer. Admittedly, he doesn't take the reader into pricing. Here, as an investor, you basically take the price given and make a decision. Of course, developing a position about what the price "should be" is what professional options investors do and if you are just licking your finger and sticking it into what you believe to be the financial breeze, well, just remember I warned you.
Olmstead organizes the book into three parts. The first explains the basic concepts of what options are and some ideas about buying and selling them. His notions of when to buy and sell and how to use the way options change their value throughout their "life" are quite interesting. It would be fascinating to find out how well they work in real life and if they did, why these abilities to gain aren't simply priced away by people trading against them.
Anyway, the second part goes into trading strategies and describes various kinds of spreads, collars, and so forth. Of course, these positions are geared towards fashioning risk for certain kinds of outcomes. They are not magic in themselves and are just as likely to end up worthless as any other set of options, but the downside and upside will be more specifically defined.
The third part contains special topics (including DAY TRADING with options - oh boy, talk about walking into a financial mind field wearing lead boots), he touches on pricing and volatility and delta neutral trading.
An interesting book that can help the beginner get some idea about options and can help those itching to trade in them begin to do so. Just remember the old childhood saying that knowledge is when you know the stove is hot. Wisdom is what you have on your fingertips after you touch the hot stove.