If you have experience in option trading, or a strong understanding of the options markets, but want to better understand how to trade given certain market conditions, this is the book for you. Many people have some knowledge of trading strategies, but have no idea how to pull it all together.
Mark Sebastian’s latest book will teach trade evaluation, using Greeks, trading various spreads under different market conditions, portfolio-building, and risk management. Sebastian’s approach will help traders understand how to find edge, what kind of trade under what conditions will capture edge, and how to create and successfully hedge to help you build your own personal Goldman Sachs or Merrill Lynch. The book demonstrates how to structure a portfolio of trades that makes more money with less risk.
Click here to watch the author's interviews with Fox Business and Nasdaq:
http://video.foxbusiness.com/v/5759956686001/
https://youtu.be/dOEJ118vMnA
Table of Contents:
Part I: Professional Lessons Every Trader Needs to Know 1
Chapter 1: Trading in Options 3
The TOMIC 4
Build an Infrastructure 5
Build a Trading Plan 6
Select Trades Based on Articulated Criteria 7
Manage Risks 8
Learn All the Essential Elements of Trading 9
Chapter 2: Risk Management 11
The Pricing Model 12
Delta 12
Change in Underlying Price 14
Change in Strike Price 15
Time to Expiration 15
Volatility 16
Gamma 17
Price of the Underlying 19
Strike Price 20
Time to Expiration 20
Volatility 22
Vega 25
Price of the Underlying 25
Strike Price 26
Time to Expiration 27
Volatility 28
Theta 29
Price of the Underlying 29
Strike Price 30
Time to Expiration 33
Chapter 3: Market Makers, Risk, and the Individual Trader 35
How Market Makers Make Money 35
Skew 38
Term Structure 39
Market Maker Size 39
Market Maker Global Risk 41
Chapter 4: Volatility 43
Realized Volatility 43
Zone 1 Ultralow Volatility 43
Zone 2 46
Zone 3 47
Zone 4 50
Implied Volatility 51
Zone 1 52
Zone 2 52
Zone 3 53
Zone 4 54
Chapter 5: What Is Edge? 57
Edge 57
10 Day HV 58
20 Day HV 59
60 Day HV 59
Review the IV of the Product 60
IV30 61
Term Structure 62
Skew 63
Know the Zone of the Market 65
Select the Trade 67
Chapter 6: Locking in Edge 69
The Retail Trader 70
Establish the Option You Want to Execute 70
Establish the Offsetting Contract 71
The Hard and Soft Side of a Trade 71
Execute, Manage, Exit 73
Part II: Using Spreads 75
Chapter 7: A Quick Review of Spreads 77
The Call Spread 77
The Put Spread 79
The Straddle 82
Short Straddle 83
The Strangle 85
The Iron Butterfly 87
The Short Iron Butterfly 87
The Long Iron Butterfly 91
Standard Butterfly 92
The Iron Condor 94
The Short Iron Condor 94
The Calendar Spread 97
The Long Calendar 97
Short Calendar 99
Front and Back Spreads 100
Back Spreads 100
The Front Spread 101
Chapter 8: Adding Edge to Spreads 105
Credit/Debit Spreads 105
Volatility 108
Skew 110
Management 113
A Few Words on Adjusting 115
Chapter 9: Butterflies and Condors 117
The Butterfly 117
Trading a Butterfly 119
Targeting Profit in a Butterfly 124
Condors 124
Strangle 125
IV and HV 126
Skew 128
Set Up and Management 129
Chapter 10: The Front Spread 131
What Is a Front Spread? 131
Creating a Front Spread 132
IV 133
Skew 136
HV 137
The Broken Wing Butterfly 138
Trade Management 139
Aggressive Management 139
Passive Management 139
Beginning of Front Spread in TSLA 140
Target Profit 142
Broken Wing Butterfly Variation 142
Chapter 11: Calendar Spreads 145
Creating a Calendar 146
Evaluate Overall Implied Volatility 147
Evaluate Term Structure 148
Evaluate Event Risk 149
Evaluate Realized Volatility 150
Choose the Right Strikes 151
Execute the Trade 152
Manage the Trade 154
Exit 154
Part III: Gobal Risk 155
Chapter 12: How a Market Maker Trades 157
Market Making 157
The Trader 160
Step 1 161
Step 2 161
Step 3 161
Step 4 162
Chapter 13: Portfolio Greeks 165
Delta 165
Gamma 166
Theta and Vega 167
Theta 167
Vega 168
Managing a Book 172
Chapter 14: Crisis Alpha 175
Defining a Market Crisis 175
Lehman Brothers Bankruptcy 176
VIX Term Structure Determines ‘Value’ for VIX Derivatives 177
Crisis Alpha Approaches 179
Approach 1: Tactical Long VIX 179
Approach 2: Low Cost-of-Carry Options Structures 182
Exit Strategy 184
Part IV: Appendices 185
Appendix A: Important Terms 187
Historical Volatility (HV) 187
Short-Term Historical Volatility 187
Intermediate-Term Historical Volatility 188
Long-Term Historical Volatility 189
Realized Volatility (RV) 190
Forward Volatility 192
Implied Volatility (IV) 192
Calls and Puts 193
Skew 194
Term Structure 196
Volatility Index (VIX) 197
Delta 198
Gamma 199
Theta 201
Vega 202
Appendix B: Best Blogs 205
Index 207
About the Author :
Mark Sebastian is the CIO of Karman Line Capital and founder of Option Pit LLC, and a former member of both the Chicago Board Options Exchange and the American Stock Exchange. He is the author of the trading manual The Option Traders Hedge Fund and a frequent guest on CNBC, Fox Business News, Bloomberg, as well as a contributor to The Street’s Real Money Pro. He has been published nationally including on Yahoo Finance, and quoted in the Wall Street Journal, Forbes, Reuters, and Bloomberg. Mark has spoken for the Options Industry Council, CBOE, ISE, CME, and is a co-host on the Option Block podcast and Volatility Views podcast. He has a Bachelor’s in Science from Villanova University.
