Options Volatility Trading: Strategies for Profiting from Market Swings |  | Author: Adam Warner
Publisher: McGraw-Hill
List Price: $44.95
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Rating:  4 reviews
Sales Rank: 147773
Media: Hardcover
Edition: 1
Pages: 304
Number Of Items: 1
Shipping Weight (lbs): 1.3
Dimensions (in): 9 x 6 x 1
ISBN: 0071629653
Dewey Decimal Number: 332
EAN: 9780071629652
ASIN: 0071629653
Publication Date: September 22, 2009
Availability: Usually ships in 1-2 business days
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Product Description
How to collect big profits from a volatile options market Over the past decade, the concept of volatility has drawn attention from traders in all markets across the globe. Unfortunately, this scrutiny has also created a proliferation of myths about what volatility means and how it works. Options Volatility Trading deconstructs some of the common misunderstandings about volatility trading and shows you how to successfully manage an options trading account and investment portfolio with expertise. This reliable guidebook provides an in-depth look at the volatility index (VIX) and demonstrates how to use it in conjunction with other analytical tools to determine an accurate measure of investor sentiment. However, recognizing a trend isn’t enough. In order to give you everything you need to profit in the options market, Options Volatility Trading also features: - Detailed analysis of historical volatility patterns in the context of trading activity
- Insights into the behavioral psychology of trading volatility
- Revealing examinations of market noise that distorts exploitable anomalies
Author Adam Warner, a recognized trading strategist and financial writer, sheds light on the required mathematics by thoroughly covering options Greeks and building a solid foundation for more advanced options and volatility concepts. He explains how to diversify your investment choices using the latest trading vehicles on the market, including exchange traded funds (ETFs), which offer exceptional money-earning potential for volatility traders. Applying the conceptual lessons in this in-depth book, you will be able to identify, collect, and process the abundance of data available every day in order to time the markets like a pro, as well as develop your own toolbox of best practices and time-tested strategies for locking in big profits from dramatic shifts in investor sentiment. Most importantly, Options Volatility Trading provides you with a go-to resource of dependable guidelines that will help you become a successful volatility trader in options and any other market.
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| Customer Reviews:
So Painful November 21, 2009
William Rockwell (Chatsworth, CA United States)
This book is a lot like running a diamond mine. You need to sift through tons of junk to get even a tiny gem out. Yes there are a few small gems to be found here. However they are well buried.
If you want a mathematical treatment try Hull. Make sure you know your calculus and probability theory.
If you want something with substance try Augen. Have some experience first.
If you want a beginner's book....there are tons of them.
If you want to be tortured by writing style and incomplete treatment buy this one. Don't think it will appeal to any novices and few experienced traders.
 Options Volatility Trading November 18, 2009
Johnsmith (Alberta)
Words cannot tell how little value I received from this book. I have limited knowledge about trading options and I hoped that this book would help me beyond the covered write strategy I presently use. It did not help me. Often I found the author's explanations cryptic, vague and very hard to follow.
Some of his ramblings took a complete chapter to describe a concept that he conclude had no relevant value. As soon as I finished reading (skimming) the final two chapters, I "put" the book in the garbage.
This book may appeal to seasoned option traders but if like me, you are a novice, pass this one by.
 Excellent Book for Understanding Options Volatility Trading November 16, 2009
Kevin H. Stecyk (Canada)
1 out of 3 found this review helpful
Options Volatility Trading: Strategies for Profiting from Market Swings
**Overall Summary**
I use options in my trading and investing. However, I am not a sophisticated options trader who rebalances his delta hedge on an hourly or daily basis. Instead, I tend to use options to profit from the view I have of the markets or a stock.
As part of my on-going learning, I do read about options on websites, newspapers, and blogs. I read about options traders taking advantage of gamma, and, although I had a sense of what they were doing, I was never clear. After reading Adam Warner's book "Options Volatility Trading," I have a solid understanding.
I thoroughly enjoyed this book because it was like having a conversation with Adam, where he gave me a tutorial on how he thinks about options and how he trades them. He could easily have used complex mathematics, charts and diagrams, overly complex strategies to confuse most readers. Instead, he chose a conversational tone with sufficient material that most options readers would readily understand.
If you are brand new to options, this book might not be the proper entry point for you. Instead, you might wish to view the learning tutorials covered by Options News Network, an online site dedicated to, surprise, options.
If, however, you have a reasonable understanding of options, then you will find this book invaluable. By reasonable understanding of options, you know what a put and a call are and can describe them. Moreover, you have a rough idea of the Greeks, though Warner does provide a quick snapshot of the Greeks in his book. You don't require a strong or thorough understanding, just a reasonable understanding, to benefit from reading this book.
As fair warning, I did read some sections slowly and more than once. However, when I learn new material, I often read sections slowly and more than once. I learn better using this technique.
After reading Warner's book, I am much more comfortable in reading options articles. For example, when authors talk about the VIX, I am knowledgeable about the VIX, how it works, how to interpret it, and its shortcomings. I have a better appreciation of which options strategies to employ when.
Now that I have read this book, do I plan to become an aggressive options trader? I do not think so. Will I use strategies discussed in this book to enhance my returns? Yes, absolutely.
Is this book a worthwhile investment? Yes, most definitely. Even if the only benefit you derive is being able to understand options articles better than you did before, the book is a worthwhile investment. My knowledge is much stronger than it was before. And, I know that will profit from the knowledge and strategies discussed in the book.
I highly recommend "Options Volatility Trading: Strategies For Profiting From Market Swings" -- 5 stars.
**Introduction**
Adam Warner sets out the tone of the book where he explains that he will focus on volatility and the VIX. You will learn how to measure volatility or how to manage an active account or an investment portfolio with an ever-changing set of backdrop conditions.
**Chapter 1: Who Am I? Why Am I Here?**
From August 1988 until the 2000 timeframe, Warner worked at a Market Maker on the floor of the Amex Options Exchange. He describes his experiences and how the Amex changed during his tenure. My most important take-away is that Warner had to think quickly on his feet. Thus, through his experiences, he not only understood the technical aspects, but also gained an intuitive feel. I like that the author has achieved a wealth of knowledge and confidence.
**Chapter 2: Know Your Greeks**
Warner provides a quick high-level tutorial on the options Greeks. If you are looking for a thorough, rigorous text discussing the intricacies of the Greeks, then you'll need to consult other texts. His purpose in this chapter is to ensure that you have sufficient knowledge to understand the rest of the text.
As part of his quick overview, he teaches you how to think about your position sizing by using delta. That is, convert your option exposure through delta into a stock position. Given your portfolio, is your option size reasonable? While options can employ leverage to positive effect, they can, if you are not careful or have a string of poor luck, destroy your portfolio. So he cautions readers to ensure that their positions are not outsized for their portfolios.
Here's a mental model that helped me:
- Delta - Useful for sizing and judging risk exposure.
- Theta - The slope on a hill while driving or biking. Either its a positive force driving forward or it is a negative force that you need to overcome through trading.
- Gamma - Represents the energy or power. If I have lots of gamma at my disposal, I can more readily overcome theta.
**Chapter 3: Understanding the VIX**
Warner provides a high level overview of the VIX. As part of his overview, he instructs you on how you should view and make sense of iVolatility.com historical and implied volatilities. He also provides some historical contexts and provides some quirks with the VIX.
**Chapter 4: Nuts and Bolts VIX**
This chapter picks up from the last and provides more detail. Warner teaches you how to interpret the VIX in that it provides an expectation, not a guarantee of future price movement. Moreover, market volatility expectations are formed from the volatility of individual stocks and their correlation.
**Chapter 5: Volatility Timing**
Not all days are created and not all months are created equal. Warner uses historical analysis to help guide you when it is usually better to buy and sell options.
**Chapter 6: How Do Traders Trade Volatility**
In general, net selling options at a higher volatility and net buying options at a lower volatility than they ultimately realize is profitable. However, active trading is often required. Warner discusses how often you should rebalance your delta hedge among other considerations.
Because of my style of trading options is so much different from Warner's volatility style, I found this chapter particularly rewarding and helpful.
**Chapter 7: Options and the Quarterly Earnings Report**
Often you hear analysts say, "Stock ABCD is expected to move X%, either up or down, after the bell when it releases its earnings."
This chapter teaches you how you can determine for yourself how much the stock is expected to move. This knowledge is helpful whether you are an option or stock trader. If your expectations are different from that of the market, you can play accordingly. But, as Warner mentions, you have to be prepared to defend your position and take your medicine when the markets surprise you.
**Chapter 8: Like the Weather--The Trader VIX and Why It Doesn't Do What You Think It Does**
For those that don't understand them well, VIX, VIX futures, VIX Options on Futures, and VIX ETNs are complex and confusing. After reading this chapter, I have a clear understanding of how these instruments work. Consequently, I will take Warner's advice not to use them. Instead, as he suggests, I will keep it simple by using a different set of common indexes and ETFs.
With all the discussion in the media about VIX and fear index and how people might want to protect themselves against volatility, investors and traders should understand VIX. I suspect a surprising number do not.
**Chapter 9: Ratio, Ratio**
Put call ratios should be interpreted and used with caution, especially for individual stocks. By themselves, they could indicate any number of scenarios, and for you the trader, it is often difficult, if not impossible, to understand which scenario is at play.
**Chapter 10: We're (Pin) Jammin'**
Warner discusses the circumstances that make pins more likely. A pin is where a stock expires at a strike price. If you knew in advance where a stock would be pinned, then you could profit from this knowledge.
**Chapter 11: Myth-Busting and Other Assorted Options- and Expiration-Related Stats**
There are several urban legends related options and options expiry. Warner examines a few of them and provides you with his analysis. For example, we often hear that expiration week is more volatile? Is that true, and if so, how can you profit from it?
**Chapter 12: Buy-Write--You Bet**
I found this chapter surprising because the results were exactly counter to my expectations. A buy-write is when an investor or trader buys a stock and sells a call. The call provides extra income while limiting potential capital gains. Under what circumstance is it advantageous to engage in buy-writes?
**Chapter 13: Strategy Room**
This is a great chapter because Warner provides his thoughts and analysis on some common strategies such as:
- Naked Put;
- Bull Call Spread;
- Bear Put Spread;
- Backspreads;
- Calendar Call Spread;
- Backspread and Calendar Spread Combined;
- Butterfly Spread;
- Iron Butterfly;
- Condor;
- Iron Condor;
- Synthetics; and
- Dividend Plays.
Armed with this knowledge, you are better equipped to think about which strategies you want to employ under various circumstances.
**Chapter 14: Ultra and Inverse ETFs**
I found this chapter surprising, because even though I am well versed in how double and triple exchange traded funds (ETFs) work, I didn't realize the size and scope of some of these ETFs. If you don't understand how ultra and inverse ETFs grind your results down over time, you definitely need read and understand this chapter. And perhaps you'll be surprised too at how important these ultra and inverse ETFs have become to the markets.
**Chapter 15: Chartin' Them Derivatives**
Many investors have profited by using technical analysis. In this chapter, Warner cautions traders not to employ the same methodology to derivatives. Under certain circumstances, it might provide some additional guidance around the edges.
**Chapter 16: Plus Ticks and Other Rules**
The key theme in this chapter is that you must trade the market you're given, not the market you would like it to be. Whether you agree with the plus tick rule for shorting stocks is irrelevant. Trade the market with rules as they exist.
Painful to read October 13, 2009
S. Sawyer
6 out of 16 found this review helpful
This is certainly one of the most poorly-written books I've ever read. Purportedly about options volatility, the book's first chapter sets a tone of much head-scratching to come with a number of stories about what it's like to be an options "market maker", none of which are vaguely related to the book's topic. Worse, each vignette is obtusely told using an excruciating onslaught of insider slang and expert-level shorthand that renders it intellectually unavailable to the average reader. Wading through this chapter I felt rather like a six-year-old stuck in a roomful of aging tycoons all spinning tall yarns of past financial conquests and exchanging secret handshakes while I sat helpless to comprehend anything about them other than the smell of their cigar smoke. It doesn't help that the whole chapter is a grammatical train wreck, most of which is curiously written in the second person and in no particular verb tense.
The second chapter begins hopefully with a discussion of option "Greeks". An explanation of "delta" starts off well enough, but then immediately degenerates into an impenetrable blather. The author gives illustrative examples of delta that are inexplicably inflated by several orders of magnitude (more insider shorthand?), mentions only in passing why an option's delta value might be an important strategic consideration to an options trader, appears to confuse the concept of delta with how many shares an option controls, and then digresses into the importance of position sizing which, unless he knows something he failed to explain, would not appear to be germane to the discussion of delta. The next section on "gamma" is no better, with examples that can only be misprints (for together they make no mathematical sense) and more pointless digressions.
And that, which happens to have been on page 25, is where preservation of sanity required that I stop. The only thing I learned about volatility from struggling through the first few pages of this thoroughly unreadable work was that my brain became alarmingly volatile while reading it.
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