Help... I feel I'm out of 'options'

[History Repeats]

Hi HR,

Thank you for committing your time to giving me a suggestion. I've got a few books, but I'll add that one to the list also.

Enjoy Australia Day

HR, would you consider yourself a successful options trader? Learning? Or more mentor?

Regards

Felipe

No i am a nobody, but i do intent to use options to express my trade in the future hence i researched about options. My suggestion is forget about all your other books, just thoroughly learn the book suggested. Only after then start looking at other books.

You too have a great Aus day.

 

[wayneL]

seem to me you lack the knowledge to trade options. Read option market making by baird inside out and till you understand everything and that should build your foundation to understand options.

Not one I've read. What insights does it offer to the retail trader?

 

[wayneL]

When reviewing your trades, one thing that can help is profiling the volatility behaviour of the underlying you're trading.

For example, two stocks may have the same implied volatility (lets say 30%) but say Stock A has historically had more moves beyond 2 standard deviations than Stock B . Your rules might class 30% as "low IV" and buy Stock B, even though it is not optimal.

I find that volatility is one part of the puzzle, the other part is the trendiness of that volatility.

In my current, permanently tired,perpetually alcohol addled state, I have been unable to successfully quantify that.

IOW, say you're short (naked or spread doesn't matter... well apart from the potential dollar losses lol), a lowering volatility move in a trend can hurt as as much as any "over the barrel" move.

I have yet to find a way to quantify that risk quantitatively... if you'll pardon the tautology.

 

[History Repeats]

Not one I've read. What insights does it offer to the retail trader?

This review says it all.


Baird's "Option Market Making" is the *other* essential options book that any serious practitioner should read. Whether you are buy-side or sell-side, or trading your own book, this work is fundamental and extends where Hull leaves off. In short, pricing models do not a bid-offer spread make, and Baird illuminates this dark world with the well-crafted sunshine of expertise, mathematical rigor, and experience. In addition, Baird's prose is clean, clear, readable and lean, without glossing over tough spots or ignoring extremes.

Baird's 1993 "Option Market Making" while a bit dated, is becoming recognized as an enduring classic. Not because it is up-to-date with the latest smile dynamics from the research of Avellenada or Rebenato, but because it does what it does very well. Like a classic cookbook such as The Joy of Cooking, this work tells you how to make perfect pot roast, but not the latest slow braised chipolte-rubbed hand-aged hanger steak.

Baird's "Option Market Making", indeed, is an economic anomaly, for it refutes an old chestnut: "those who can't do, teach." In the financial publishing world a book that makes or saves you money should not exist, since the expected return of taking the time and work for authorship is much lower than another economic activity (probably including flipping hamburgers). What motivated Baird? Who knows? But this is pure saved gold here.

Option neophytes should not be misled: this is not a book of "secrets of" that will lead you to quick easy riches in the sometimes wild swings of delta and gamma in options markets. Rather, this is a sober, careful, useful book on the actual difficulty of making a market under uncertainty and rapidly changing information sets. This is a work for practitioners and professionals who want to survive and thrive, not "*just*drive!*" Cowboys and "feelings" punters look elsewhere to scratch your itch.

Standout chapters include "Options Risk" which treats delta, gamma, lambda, theta, kappa/vega, rho, skew, and time spread risks in a clear, although direct and quick, manner. "Position Risk Profiles" covers the meat and potatoes of an options market maker: what is in your book at any one time. This chapter mercifully is not in a "panic mode" tone, but rather carefully and soberly guides you through essentials of risk determination for your entire book.

The chapter "On Strategy" will be helpful for punters and those who have committed some capital to being a market maker, covering delta neutrality (yawn!), but more importantly time spreading, expiration, Fences, and high volatility periods (yeah!). It also treats broker order flow and open interest analysis in a sober way ("saucer bottom" and "reverse hook" technical analysis copter beanies need not apply).

The chapter "Market Making Tactics" is perhaps the most aggressive, but it also patiently spells out what option market makers do on a daily basis. The entry on "common mistakes" alone is worth the price of this volume. Baird closes with a lighter "Observations from the Floor," which it behooves all to read nd revist upon occasion. Having worked in a pit myself, all I can say is "amen Brother, and again I say amen."

 

[wayneL]

Thanks History Repeats, sounds like definitely one for the library

 

[wayneL]

As a general comment about options - Since I have re-embarked on my "honest" profession I have been satisfying my raging sequipedalianism with equine anatomical terms in conversations with specialist veterinarians, preventing overdorsiflexion of metacarpophalangeal joints, periarticular degenerative joint disease of distal interphalangeal joints, dealing with ischaemia of dermal laminae etc... you get the picture. :

This has crowded out much of the nuanced option trading knowledge I had eeked out trading for a living.

SO, what I am saying is that to be good at this, total immersion is necessary FWIW... at least if your a brain damaged, alcohol induced dementia candidate like me

On the plus side, I'm still earning modest option profits and caning it in my profession.

 

[minwa]

seem to me you lack the knowledge to trade options.

Have to disagree. It's not like he is a successful stock of futures trader and gets killed when he made the switch to options. He mentioned most of his trades are plain calls & puts, not some complex option spread. If you cant pick direction trading plain calls/puts, having more options knowledge/theory is not going to turn you profitable.

From what I deduct the problem is not in OPTIONS, but TRADING SKILL itself.

 

[saltd0g]

Hey Felipe! How have your endeavours gone since your last post!? I am new to options and have been gobbling up all the information i can find, it seems to be a fine craft! Did you refine any trades?