From novice to riskarb...

C

candletrader

OK, its clear to me that riskarb is the most knowledgeable person on these here forums (when it comes to the esoteric world of options)...

I would like various opinions on the best route to get from the stage of novice
(=understands stuff like straddles, understands the basics of the greeks, understands gamma scalping etc, but is unable to be creative about options, and is unable to think with any degree of fluency about anything but the 'standard' set-ups)

to the stage of riskarb
(= can talk options like there's no tomorrow, understands the subtle nuances of options, can exploit arbitrage opportunities with ease, and can very easily and quickly make complicated adjustments to payoff profiles of existing positions, in recognition of evolving market conditions)...

Obviously, one recognises that experience counts too, but we'll keep that factor constant for the purposes of this exercise...

So to help others to get from novice to riskarb, I invite riskarb (and other like-minded options traders) to please create their recommended reading lists (ranked easiest first, to most complicated last)...
 
Options, Futures, and Other Derivatives (5th Edition)
by John C. Hull

Option Volatility & Pricing: Advanced Trading Strategies and Techniques
by Sheldon Natenberg

Options: Perception and Deception: Position Dissection, Risk Analysis, and Defensive Trading Strategies
by Charles M. Cottle

Dynamic Hedging : Managing Vanilla and Exotic Options
by Nassim Nicholas Taleb

The Complete Guide to Option Pricing Formulas
by Espen Gaarder Haug

Option Theory
by Peter James


Maths:

Option Valuation under Stochastic Volatility
by Alan L. Lewis

Continuous Martingales and Brownian Motion
by D. Revuz, Marc Yor

Analysis of Financial Time Series
by Ruey S. Tsay


The books on the maths are not a necessity by any means. Natenberg is a necessity for trading vanilla-options, Cottle's book is excellent as well for practical applications. I grudgingly recommend Taleb.

riskarb
 
I inavertently placed Cottle after Nate... Cottle is an easier read. I will add that if you're looking for a working-knowledge of vanilla-options, those are the two books to read, along with Hull as a overview.

riskarb
 
As introductory treatises, I'd add McMillan's "Options as a Strategic Investment" and "McMillan on Options" to the list. However, to truly get to the Riskarb level, you'll need to do a lot more than simply read some books. Try trading various options strategies in the real world with real (big) money for a couple decades. Then you might begin to approach that level. Otherwise, it's all academic.

Nonetheless, good luck in the effort.
 
Hi riskarb,

Thanks for this... I was under the impression that Cottle was actually harder than Natenberg...

Assuming then, that they are both of equivalent difficulty, which book should be read prior to these two to make them more easily digestable?

For your information, I downloaded Cottle a year ago or so, and have skimmed Natenberg in a shop (a few years ago), but don't actually own it yet (easily rectified by a few clicks on Amazon!)... Cottle is quiet heavy-going, although I recognise it's considerable value...
 
Quote from Hello_Dollars:

As introductory treatises, I'd add McMillan's "Options as a Strategic Investment" and "McMillan on Options" to the list. However, to truly get to the Riskarb level, you'll need to do a lot more than simply read some books. Try trading various options strategies in the real world with real (big) money for a couple decades. Then you might begin to approach that level. Otherwise, it's all academic.

Nonetheless, good luck in the effort.
More...

Hi Hello,

Which of McMillan (Options as a Strategic Investment) and Natenberg have you personally found
a) easier
b) more valuable for your knowledge-base
 
Quote from riskarb:

I inavertently placed Cottle after Nate... Cottle is an easier read. I will add that if you're looking for a working-knowledge of vanilla-options, those are the two books to read, along with Hull as a overview.

riskarb
More...



cottle is an easy read ? !

woulda coulda shoulda was the MOST difficult trading book i have ever read, although it is miles away from what i am doing now with options, it is the BEST option book ever written.

i have shared it with a member of the CBOE and he found it unreadable---this should give you a clue of the intensity of cottle's writing style.

best,

surfer :)
 
Can you give an example of a trade "scalping gamma" ? And aren't gamma and delta plays the same thing in practice since gamma is just the amount by which delta changes for each point in the underlying?
 
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