Best technical options books as of 2018

[silveredge]

Amazon has Options as a Strategic Investment: 5th Edition by Lawrence G. McMillan. .

That book is a for-dummy level

 

[Corto]

It contains what you said you are looking for.
I'm an electrical engineer close to retirement and almost all my knowledge came from books that explained things in layman terms and then from decades of experience. Publications at the PHD level were pretty much useless. And the math I use is just basic high school stuff.

 

[ironchef]

That book is a for-dummy level

Since I could not understand lots of stuffs in the book, it must be for very smart dummies.

 

[Aquarians]

More like the bible on derivatives. it covers way, way more than options [...]

Pro tip: If you're looking to save money buy the international version or get it from the used books section of Amazon. I prefer international versions when available.

I second what gaussian says. I worked for a while in the industry and eventually had to cover a lot more than just options: yield curve bootstrapping, variance and volatility swaps, interest rate and equity swaps ... they're all covered in Hull's book.

On the second part, now I don't feel so guilty for being a cheapskate - I did buy the international version, but not sure it's legal / available in the US. You can find it here: https://www.abebooks.co.uk/servlet/...17&n=100121501&cm_sp=snippet-_-srp1-_-title14

 

[ironchef]

No problem, I don't want you to think I'm some super trader or something. Just a passionate fan of the markets. I'll give it a shot though.



I think if you observe the general performance of CTAs in the last 30 years we can see that the EMH is more or less not-totally-true. Arbitrage is sort of ambiguous here. If you mean is there a way to make a risk-free profit? I think so, if you're fast enough. For retails I don't believe there are many arbitrage opportunities you can capitalize on.

If you mean arbitrage as in Arbitrage Pricing Theory I certainly think there is significant utility in understanding APT. Even for retails.

Answering this part is relatively difficult because it's pretty opinionated and I do not possess a PhD in financial engineering or economics.

Under the assumption that the expectancy of any trade is zero your argument there is that the markets are approximately martingale. That is, the best estimate of today's return is yesterday's. I don't think this is totally true given the mean reverting properties of some portfolios.



This is an incredibly complicated and interesting question. I can tell you the basic theory of how options are priced but I couldn't tell you how MMs do it.

Options MMs make money primarily through the spread. So your net zero on a one sided trade probably netted them the difference of making that market. As for IV it is implied because it is determined by the market (and extracted by working backwards from the BSM). They didn't really arrive at the IV so much as the market "priced in" (for lack of a better term) the IV you saw.

Models aren't forced into the BSM world. For example, there is the Bjerksund-Stensland Model (also BSM funny enough) as well as the binomial options pricing model. There are also many jump diffusion models with the BSM. What I am trying to say is simply that we can't know what model the MM you're referring to is using for pricing. We can be almost certain it isn't the Black-Scholes model, however.


I hope this helps. Feel free to shoot me a private message if you want to talk more.

Thank you for your responses. Lots for me to think about before I can ask you some more questions.

Regards,

 

[gaussian]

Thank you for your responses. Lots for me to think about before I can ask you some more questions.

Regards,

Any time! If you're really interested in the markets your places to look are almost limitless. I personally run a journal where I note interesting things I see. It keeps me honest and focused. It's so easy to get distracted in the various nooks and crannies. I lost almost a full year just wandering around trying different instruments and playing with different tech before I settled down.

Have fun!

 

[silveredge]

Since I could not understand lots of stuffs in the book, it must be for very smart dummies.

Nah, just that you are a dumb as heck dummy

 

[ironchef]

Nah, just that you are a dumb as heck dummy

Well, sometimes even a monkey throwing darts at a list of stocks can outperform smart PhD financial geniuses. So there is still hope for a dumb as heck dummy. I think it is what you pros called survival bias.

Anyway McMillan is my reference book and I do go back to it whenever I needed answers. Lately I went back and read it quite often.

 

[El OchoCinco]

I've read Cottle, Natenburg, Hull, but I'm still having trouble applying that knowledge into real life. Stuff I would like to learn more about are:

1) How does vol path interact with option values/skew/delta, etc...
2) Best methods to hedge when vol/spot are highly correlated
3) How to maximize gamma theta ratio

Bascially books on vol path, skew, etc...

read those books and many more too but can say in my humble opinion, they are not meant for the retail trader to absorb and trade. they give you a better understanding of the math and mechanics of options but it might be like reading an advanced Calculus text book to learn how to do algebra.

 

[qlai]

read those books and many more too but can say in my humble opinion, they are not meant for the retail trader to absorb and trade.

I was wandering this myself ... when you go so deep into options theory is it something that retail guy can ever take advantage of ... or is it only big MM type firms with HFT tech?