Table of Contents 1
COVER
2
INTRODUCTION
Trading as a Process
Summary
3
CHAPTER 1: Options
Option Pricing Models
Option Trading Theory
Conclusion
Summary
4
CHAPTER 2: The Efficient Market Hypothesis and Its Limitations
The Efficient Market Hypothesis
Aside: Alpha Decay
Behavioral Finance
High-Level Approaches: Technical Analysis and Fundamental Analysis
Conclusion
Summary
5
CHAPTER 3: Forecasting Volatility
Model-Driven Forecasting and Situational Forecasting
The GARCH Family and Trading
Implied Volatility as a Predictor
Ensemble Predictions
Conclusion
Summary
6
CHAPTER 4: The Variance Premium
Aside: The Implied Variance Premium
Variance Premium in Equity Indices
The Implied Skewness Premium
The Implied Correlation Premium
Commodities
Bonds
The VIX
Currencies
Equities
Reasons for the Variance Premium
Insurance
Jump Risk
Trading Restrictions
Market-Maker Inventory Risk
Path Dependency of Returns
The Problem of the Peso Problem
Conclusion
Summary
7
CHAPTER 5: Finding Trades with Positive Expected Value
Aside: Crowding
Trading Strategies
Options and Fundamental Factors
Post-Earnings Announcement Drift (PEAD)
Confidence Level Two
The Overnight Effect
FOMC and Volatility
The Weekend Effect
Volatility of Volatility Risk Premia
Confidence Level One
Earnings-Induced Reversals
Pre-Earnings Announcement Drift
Conclusion
Summary
8
CHAPTER 6: Volatility Positions
Aside: Adjustment and Position “Repair”
Straddles and Strangles
Aside: Delta-Hedged Positions
Butterflies and Condors
Aside: Broken Wing Butterflies and Condors
Calendar Spread
Including Implied Volatility Skew
Strike Choice
Choosing a Hedging Strike
Expiration Choice
Conclusion
Summary
9
CHAPTER 7: Directional Option Trading
Subjective Option Pricing
A Theory of Subjective Option Pricing
Distribution of Option Returns: Summary Statistics
Strike Choice
Fundamental Considerations
Conclusion
