A detailied look at options trading. The best aspect of the book is that it basically demonstrates that options trading is not for begineers. The mathematics in the book require some sophisticated underanding of statistics. However, I think the best lesson I took from the book was that having inside information about the markest is a key to success. Many of the key strategies in the book require that you stay abreast of every piece of information (business news, government news, what is the fed doing, etc) that is available when making trades. Statistical analysis may be necessary but sure is not sufficient to being successful in options trading.
The preface says its for experienced options traders, but at best its useful for beginners looking for the next step.
It starts off OK, going over the basics of Black-Scholes, Binomial tree modesl, calculating volatilities etc. You think you're going to get into the interesting chapters then - you get fluff about bid ask spreads being wide for options, how an option can change in price over time before expiry, what a spread/butterfly/calender looks like. Really? Any experience options trader would know this already.
The first few chapters define Gamma, Kurtosis, but then isn't mentioned again for the rest of the book. The final chapter #9 has diagrams of what Jeff believes an IT solution should be structured. I can't see this of being any use to anyone, most people wont be building their own software applications and if they did, they wouldn't base it on a few dozen vague drawings and descriptions.
There is some stuff that isn't regularly talked about, pinning on expiry, changes in stocks volatility over earnings. If you're getting into options and want to order a lot of different books to get different views on the subject it could be handy, otherwise I dont think its so useful.
This is a very good book (for intermediate to advanced traders) about options and the impact volatility has on strategies with straight forward simple approach. There are pieces of little math, required to understand the edge with options, though. The book provided me with some good ideas and unique insights as well as sharpened my understanding of volatility and the impact that increases and decreases in volatility have on option prices and values.
This book opened my eyes to the possibility of using historical data to profit from the empirical regularities that the BSM model does not capture (e.g., volatility swing, pinning at expiration, price changes not confirming to the lognormal distribution the model assumes). If general public blindly use the BSM model and thus set the option price as the model suggests, traders who are aware of these deviations can profit from the mispricing.
Discussions on structured positions are insightful. For example, I always thought that options are efficiently priced so that the expected profit from call and put should be the same. However, the book shows that this is not necessarily true because of the put-call parity driven by arbs. Even when underlying price are very likely to fall, the parity prevents put options from becoming too expensive relative to call options.
My only gripe is that tables look too small on Kindle. I wonder if Amazon or the author can provide a pdf file containing only tables and figures so that Kindle users can just print them out and look them up.
I read all the other reviews of this book and was quite surprised after having read the book myself that someone actually said they were able to duplicate some of the HV, Ivol and spike values from his book. I too went through the exercise of creating an excel spreadsheet and try as I might I can't tweak my spreadsheet values to come close to Jeff's values. For example, in the AAPL data I can match the volatility values, but then the spikes are off by factors of 10! Some of the later narrative accompanying the tables in chapter 6 I can't duplicate no-way, no-how and believe me I'm no mathematical ignoramus. I've tried getting his values starting from price and going forward or starting with the other values and going the other way to solve for price and sorry, but no enchilada!
So, my conclusion and the reason for my low rating is that although some of the basic ideas are sound, the tables, math and accompanying narrative explanation accompanying these are useless. I find value in something if I can duplicate the author's results. I've tried getting in touch with Jeff, but so far no luck. So, all in all, an OK book with some good ideas but the author is no teacher!
This book could have been a lot better. The author starts his book by stating a lot of books on trading options are too academical and lack practical use. This book is just a book like those books.
Good points:
- He shows us how to calculate volatility in excel and how to express the daily movements in sigma units (e.g. 3,6 standard deviations).
- Clear demonstration on the negative effects of bid-ask spreads, the huge influence of small volatility movements on the option price.
- The part on volatility spikes (even though the author again does not go into detail on how to use these spikes)
Bad points:
- Too theoretical on pricing models and volatility
- Way too short on the Greeks
- This whole book does not contain a clear explanation on the difference between implied volatility and historical volatility, nor does it explain clearly how to bet on options if you know the difference. There is a short body of text on this in the part on volatility spikes, but it's not clear at all. This could easily have been prevented if the author would have spent some more time on the basics.
- The part on (basic) option strategies was poor in my opinion. Not much usable stuff at all for option traders like me trading credit spreads and butterflies and the like.
All in all, not really a bad book, but the author lacks the necessary writing skills to bring this stuff on to the public. Mc Millan or Natenberg are far better. Even a book like "How to get rich with option" from Lowell (which contains much less details and complexity than this book) will be more helpfull to the average option trader.
Product Details :
Hardcover: 304 pages
Publisher: FT Press; 1 edition (January 27, 2008)
Language: English
ISBN-10: 0132354691
ISBN-13: 978-0132354691
Product Dimensions: 6.2 x 1.1 x 9.3 inches
More Details about The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets 1st editon
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