Here are some quotes from a Wall Street Journal story about how a successful hedge fund manager uses options. It is useful to be able to back out an implied distribution from a set of option prices that you can compare with your views and trade against if your view differs greatly.
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Mr. Talpins is a “macro” trader who uses options to try to capture the
upside of—and limit potential losses from—strategies aimed at
anticipating global economic shifts. Paying for stock and bond options
can lead to losses in placid markets, but volatility over the past
year has buoyed Element’s bullish wagers on U.S. stocks and the U.S.
dollar. Mr. Talpin’s bearish bets on the U.S. interest rates and the
euro also have paid off.
“Element is great at using options in a thoughtful way, so they often
make more money when they get it right than they lose when they’re
wrong,” says Adam Blitz, chief executive officer of Evanston Capital
Management, which manages portfolios that invest in Element.
...
Mr. Talpins, a former Yale University math whiz who, people close to
the firm say, logs into the fund’s computer system every day on
vacation, spends much of his time focused on developing broad
investment themes. His focus is on attempting to meld old-school macro
bets with a newer, quantitative approach that features structured
wagers in stock, bond and currency markets.
An ideal trade might be one that yields gains only with a sharp rally,
but keeps possible losses limited, rather than making outright wagers
on the future of stocks or bonds. In late winter of 2017, for example,
Mr. Talpins anticipated that Congress would pass a corporate-tax deal.
Element loaded up on options on the S&P 500, a move that cost the fund
for much of the year but led to huge gains when the deal came together
and stocks climbed.
**********************************************************
Mr. Talpins is a “macro” trader who uses options to try to capture the
upside of—and limit potential losses from—strategies aimed at
anticipating global economic shifts. Paying for stock and bond options
can lead to losses in placid markets, but volatility over the past
year has buoyed Element’s bullish wagers on U.S. stocks and the U.S.
dollar. Mr. Talpin’s bearish bets on the U.S. interest rates and the
euro also have paid off.
“Element is great at using options in a thoughtful way, so they often
make more money when they get it right than they lose when they’re
wrong,” says Adam Blitz, chief executive officer of Evanston Capital
Management, which manages portfolios that invest in Element.
...
Mr. Talpins, a former Yale University math whiz who, people close to
the firm say, logs into the fund’s computer system every day on
vacation, spends much of his time focused on developing broad
investment themes. His focus is on attempting to meld old-school macro
bets with a newer, quantitative approach that features structured
wagers in stock, bond and currency markets.
An ideal trade might be one that yields gains only with a sharp rally,
but keeps possible losses limited, rather than making outright wagers
on the future of stocks or bonds. In late winter of 2017, for example,
Mr. Talpins anticipated that Congress would pass a corporate-tax deal.
Element loaded up on options on the S&P 500, a move that cost the fund
for much of the year but led to huge gains when the deal came together
and stocks climbed.
The good news is you do not need to understand it to make money trading.