Options and Options Trading

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_ward_robert_(2004).gif" width="136" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Options and Options Trading</td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="73, 0, 164, 32"> </map> <img border="0" src="../images_title/ward_r44.gif" usemap="#FPMap2" width="186" height="158"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table5"> <tr> <td width="50%" valign="top"> <p align="left" class="body_expanded" style="line-height: 120%"><strong style="font-weight: 400">Books for beginner-traders come a dime a dozen. Most will teach you bad lessons you will never unlearn. This book is an exception. It doesn't so much compete with Natenberg's (<a href="../titles/natenberg_s_(1994).htm">1994</a>) classic as complement it. While Natenberg focuses on qualitative aspects of options markets and trading, Ward focuses primarily on communicating the mathematics. The first two thirds of the book develop basic understanding of mathematical concepts leading up to the famous Black-Scholes formula. The final third delivers some mostly excellent advice on trading. </strong></p> <p align="left" class="body_expanded" style="line-height: 120%"><strong style="font-weight: 400">This is a book for someone who is just starting out as an options trader—someone who has a liberal arts degree, but whose connections somehow landed him in a trading or sales position. If you know what a standard deviation is ... or a normal distribution, or a calculus derivative, this book is not for you. If you don't, you need to understand these terms, and this book will get you up to speed. Starting with simple coin tossing experiments, the author introduces binomial trees. He illustrates how these might be used to value simple options. He then describes normal distributions, simple statistics and, ultimately, the Black-Scholes formula. Discussions are very intuitive. The author makes wonderful analogies. Be aware that the treatment is VERY elementary, so readers with some math skills are likely to be bored (consider Chriss (<a href="../titles/chriss_n_(1997).htm">1997</a>) and an accessible but more sophisticated alternative). I think the readers this book targets will struggle at points—especially when Ward introduces the normal distribution, continuous compounding, and the Greeks. Don't get bogged down at these points. Find someone to explain them to you, and keep going. The author repeats several times that the book won't make you an expert. It simply is intended to get you up to speed, and it does an excellent job. Along the way, it communicates how a trader should think. </strong></p> <p align="left" class="body_expanded" style="line-height: 120%"><strong style="font-weight: 400">One of the best chapters is the non-quantitative Chapter 19 that explains how traders "really" make money. Read this carefully. Indeed, I would stop reading after this. Chapter 19 is a high point ... things kind of go down hill from there. Grab either Natenberg (<a href="../titles/natenberg_s_(1994).htm">1994</a>) or Baird (<a href="../titles/baird_a_(1993).htm">1993</a>), and let one of them pick up the story from here.</strong></p> </td> <td width="50%" valign="top" class="body"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table7"> <tr> <td class="contents_expanded"> <p class="contents">Foreword</p> <p class="contents">Preface: On Taking Risk and Blowing Up</p> <p class="contents"><b>Part 1 The Basics </b></p> <p class="contents">1. What a Derivative Is and What It Isn't</p> <p class="contents">2. Binomials and Coin Tosses</p> <p class="contents">3. Pascal's Triangle and the Binomial Theorem</p> <p class="contents">4. Distributions Are the Key--What Are Distributions?</p> <p class="contents">5. Probabilities, Odds, and Payoffs</p> <p class="contents">6. Writing Our First Option</p> <p class="contents">7. Sectors, Strike Prices, and Summation Signs</p> <p class="contents">8. The Fair Price of an Option</p> <p class="contents">9. Our First Stock Option: IBM</p> <p class="contents">10. Statistics: The 15-Minute Cram Course</p> <p class="contents">11. Dow Jones versus Coin Tosses</p> <p class="contents">12. Turning Spot Prices into Forward Prices: S x e[superscript RT]</p> <p class="contents"><b>Part 2 The Formula </b></p> <p class="contents">13. Skeleton for an Option Formula</p> <p class="contents">14. Getting Comfortable with the Black-Scholes Formula</p> <p class="contents">15. Introducing Volatility and SKIT-V</p> <p class="contents">16. Pros and Cons of the Black-Scholes Formula</p> <p class="contents"><b>Part 3 Trading </b></p> <p class="contents">17. A Primer on Risk and Hedging</p> <p class="contents">18. Option Risk: Finding It and Hedging It</p> <p class="contents">19. How Traders Make Money (Customers)</p> <p class="contents">20. How to Convert Puts and Calls: CPL.PCS</p> <p class="contents">21. The Best Option Strategies</p> <p class="contents">22. Market Insights and Edges</p> <p class="contents">Answer Key</td> </tr> </table> </td> </tr> </table> <p align="center" class="body"> </p> </td> </tr> </table> <div align="left"> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" bgcolor="#FFFFCC" id="table8"> <tr> <td width="100%"> <p class="body" style="margin-bottom: 6"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/other_functions_trading.htm">Other Functions - Trading</a><p class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/markets_industries_derivatives.htm">Markets - Derivatives</a></p> <p class="bullet"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_basic.htm">Financial Engineering - Basic Theory</a></p> <p class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_financial_math.htm">Mathematics - Financial Math</a></td> </tr> </table> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>