Acknowledgments . . . xi
About the Author . . . xii
Preface . . . xiii
A Guide for Readers . . . xv
1. Introduction . . . 1
Price Discovery and Market Stability . . . 6
Practical Limitations of Technical Charting . . . 9
Background and Terms . . . 12
Securing a Technical Edge . . . 16
Endnote . . . 21
2. Fundamentals of Option Pricing . . . 23
Random Walks and Brownian Motion . . . 25
The Black-Scholes Pricing Model . . . 29
The Greeks: Delta, Gamma, Vega, Theta, and Rho . . . 32
Binomial Trees: An Alternative Pricing Model . . . 42
Summary . . . 45
Further Reading . . . 45
Endnotes . . . 46
3. Volatility . . . 47
Volatility and Standard Deviation . . . 48
Calculating Historical Volatility . . . 50
Profiling Price Change Behavior . . . 61
Summary . . . 75
Further Reading . . . 76
4. General Considerations . . . 77
Bid-Ask Spreads . . . 79
Volatility Swings . . . 82
Put-Call Parity Violations . . . 89
Liquidity . . . 91
Summary . . . 95
Further Reading . . . 97
Endnotes . . . 97
5. Managing Basic Option Positions . . . 99
Single-Sided Put and Call Positions . . . 100
Straddles and Strangles . . . 118
Covered Calls and Puts . . . 137
Synthetic Stock . . . 143
Summary . . . 146
Further Reading . . . 148
Endnotes . . . 149
6. Managing Complex Positions . . . 151
Calendar and Diagonal Spreads . . . 152
Ratios . . . 162
Ratios That Span Multiple Expiration Dates . . . 175
Complex Multipart Trades . . . 182
Hedging with the VIX . . . 195
Summary . . . 202
Further Reading . . . 203
Endnotes . . . 204
7. Trading the Earnings Cycle . . . 205
Exploiting Earnings-Associated Rising Volatility . . . 207
Exploiting Post-Earnings Implied Volatility Collapse . . . 21
