Trading Options in Turbulent Markets: Master Uncertainty through Active Volatility Management

Trading Options in Turbulent Markets: Master Uncertainty through Active Volatility Management

Larry Shover

Language: English

Pages: 304

ISBN: 1118343549

Format: PDF / Kindle (mobi) / ePub

Top options expert Larry Shover returns to discuss how to interpret, and profit from, market volatility

Trading Options in Turbulent Markets, Second Edition skillfully explains the intricacies of options volatility and shows you how to use options to cope, and profit from, market turbulence. Throughout this new edition, options expert Larry Shover reveals how to use historical volatility to predict future volatility for a security and addresses how you can utilize that knowledge to make better trading decisions.

Along the way, he also defines the so-called Greeks—delta, vega, theta, and gamma—and explains what drives their values and their relationship to historic and implied volatility. Shover then provides effective strategies for trading options contracts in uncertain times, addressing the decision-making process and how to trade objectively in the face of unpredictable and irrational market moves.

  • Includes a new chapter of the VIX, more advanced material on volatility suitable for institutional or intermediate options trader, and additional volatility-based strategies
  • Answers complex questions such as: How does a trader know when to tolerate risk and How does a successful trader respond to adversity?
  • Provides a different perspective on a variety of options strategies, including covered calls, naked and married puts, collars, straddles, vertical spreads, calendar spreads, butterflies, condors, and more

As volatility becomes a greater focus of traders and investors, Trading Options in Turbulent Markets, Second Edition will become an important resource for in-depth insights, practical advice, and profitable strategies.
















the near future. Traders rapidly followed their example, using ever-smaller samples of data to estimate volatility. As the c03 10 November 2012; 20:43:17 Working with Volatility to Make Investment Decisions 29 use of delta and gamma hedging (in options) also increased, traders increasingly used implied volatilities with computer models to spot new profitmaking opportunities. The historical volatility value is nothing more than a percentage that describes past changes in the price of an

2 standard deviations White ϩ gray ϩ black ϭ 99%, or 3 standard deviations amount of time, and for options contracts it is defined as the standard deviation of daily percentage changes of the underlying share price. For options, implied volatility is simply the difference between the market price of a contract and its projected theoretical value at any given moment in the future. Volatility is usually expressed in annual terms, and it represents a one-standard-deviation move in the value of the

cabs at all (zero yellow cabs and ten white cabs). Given the time and patience to stand on the corner long enough, the result might be a distribution very similar to that seen in Exhibit 4.2. Most of the observations will tend to assemble near the center, with a decreasing EXHIBIT 4.2 Normal Distribution of Taxi Cab Sightings in New York City 0 1 2 3 4 5 Mean 6 7 8 9 10 10 yellow 9 yellow 8 yellow 7 yellow 6 yellow 5 yellow 4 yellow 3 yellow 2 yellow 1 yellow 0 yellow vs. vs. vs. vs.

incentive to find “important” results. Due to this bias, an author might not recognize that a statistically significant result might still be unlikely, and for the trader or investor this uncertainty waters down the conclusions offered as a result of the research. Also, even a hypothesis that looks radical on the surface can simply be window dressing for conclusions that can be arrived at in more simple, straightforward ways. Though these particular types of back tests or hypotheses are clearly not

for the ten contracts sold: $1:50 premium per underlying stock share 3 100 shares per contract 3 10 contracts ¼ $1,500 This position is considered covered in that the investor sold ten option contracts against the thousand shares of stock that he holds. The premium received for the option sale ($1.50 per share) effectively lowers the investor’s cost basis (purchase price) of the stock from $28 to $26.50 per share. Three Possible Outcomes 1. At expiration the stock closes above $30 per share. The

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