Another option trading strategy

[TradingDemystified]

I would try to get a few good books on options trading so you can see what this business is all about on a professional level. Try to get any book by Natenberg, Hull, McMillan, Cottle and the one book about options that Nassim Taleb wrote, "Dynamic Hedging"

 

[ironchef]

book about options that Nassim Taleb wrote, "Dynamic Hedging"

Is this book different from the others? If so what are the key points I should watch out for?

Thanks.

 

[ironchef]

Your returns' dependence on 1 trade would lead me to believe that your strategy is not very robust (i.e. capable of withstanding a wide variety of market conditions, moves, etc)
As a quick and dirty estimate, a straddle implies a probability of profit of around 55% for the seller and 45% for the buyer. The seller of a straddle has to be compensated because of the unlimited potential risk it's facing (zero on the downside and infinite on the upside). Statistics show (and again, statistics are the past but it's the best we have) that in most situations (around a 10 to 15 percentage points edge) the implied move in earnings is OVERstated so it favors the sellers. Of course the actual move compared to the implied move is only one factor and the determinant of profits is a combination (position sizing, strategy, timing, exit strategy, etc)

Or perhaps he should try figure out why this one worked wonderfully well and formulate a strategy from there?

 

[vegamedic]

Is this book different from the others? If so what are the key points I should watch out for?

Thanks.

a good portion of the book is about managing convexity, specifically as it relates to a book of options. other books tend to focus more on managing individual position risk

 

[ironchef]

a good portion of the book is about managing convexity, specifically as it relates to a book of options. other books tend to focus more on managing individual position risk

Thank you. That is extremely helpful to know. I am going to read the book.

Best wishes.

 

[TradingDemystified]

Is this book different from the others? If so what are the key points I should watch out for?

Thanks.

What I meant was that it's different from Taleb's other books like "Fooled by Randomness", "The Black Swan", which are not technical in nature

 

[truetype]

Ithe one book about options that Nassim Taleb wrote, "Dynamic Hedging"

I read it before it was published, courtesy of the author, and agree it's a fun read. But there's nothing in the book that will make you money.

 

[ironchef]

I read it before it was published, courtesy of the author, and agree it's a fun read. But there's nothing in the book that will make you money.

I find hedging a very difficult do for a small retail trader like me. If his definition of hedging is similar to the traditional, e.g. like delta hedge, then it is not practical for me.

Anyway, I will read this book since I enjoyed reading all his other books.

Thank you for your comments.

 

[ironchef]

I read it before it was published, courtesy of the author, and agree it's a fun read. But there's nothing in the book that will make you money.

Is this the book you read?

 

[vegamedic]

Is this the book you read?

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that's the one i read anyway. he's right though, a lot of the stuff won't necessarily make you money (unless you run a book of exotic options at a firm i guess), but it's a very interesting read about risk management on an option book (vanilla or exotic) is it relates to the non-linearity of option risk. If I sold a lot of naked options or ran a book that was mostly short positions I'd probably have read it a lot closer.