Books on Options Trading

[ironchef]

I think you are going about this all wrong. You are not trading to accurately price the options and the MM misprice options constantly. If they were accurately priced, no one would trade them. NO One can accurately price options and if they did the price would be wrong an instant later as time, vols, the underlying all changed.

If you think you need to sit there and accuratey price options to make money then I can see where your struggles come from.

I trade vol skews and directional and non directional. It has ntohing to do with market making pricing or beating them, it is about making money.

Tricky question. You are partly correct because the market maker is representing fair value, the market. So yes, over the long haul, to win you need to beat the market. But that's kinda a universal truth of trading.

Now, the partly incorrect is because of that 3rd party ya kinda unfairly added into the zero sum argument. You sell a put to a MM, he hedges it, and two minutes later news comes out that sends the market off on its biggest rally of the decade. Both of you win.

1) You can trade at an edge loss and still earn, albeit less due to edge loss, being right on direction or vola. MMer can have an edge on price and hedge (better) dynamically and earn. Two entirely different business models.
2) No. MMers are generally price-neutral, locally. You can be right on vol (MMer "wrong") and wrong on price, and vice versa, and still earn. The MMers edge may exceed his vegfa exposure, again, locally.

Thank you all for taking the time to write.

This has been bugging me for a long time. You gave me a different perspective, especially the part about different business models use by MM and I.

For years I traded stocks on margins. Starting in 2013 instead of margins I used options. Like @El OchoCinco said, if it worked with margins, it should work with options. However, I really like to trade options differently because leverage is a two edge sward, it can kill if I am not careful.

I am working my tail off trying to get a better understanding.

Happy holiday to all.

 

[biandang49]

... and while trading is fun, it also good to brush up your math on option pricing. I found Espen Gaarder Haug's 'Complete Guide to Option Pricing Formulas' incredibly useful.

Cheers, Felix

Does anyone have the included CD-ROM for Haug's 'Complete Guide to Option Pricing Formulas'? While I have the book on a table my son managed to drag the CD across the floor...