: Michael C. Thomsett
: The Mathematics of Options Quantifying Derivative Price, Payoff, Probability, and Risk
: Palgrave Macmillan
: 9783319566351
: 1
: CHF 45.50
:
: Management
: English
: 345
: Wasserzeichen/DRM
: PC/MAC/eReader/Tablet
: PDF
This book is written for the experienced portfolio manager and professional options traders. It is a practical guide offering how to apply options math in a trading world that demands mathematical measurement. 

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Every options trader deals with an array of calculations: beginners learn to identify risks and opportunities using a short list of strategies, while researchers and academics turn to advanced technical manuals. However, almost no books exist for the experienced portfolio managers and professional options traders who fall between these extremes.

Michael C. Thomsett addresses this glaring gap withThe Mathematics of Options, a practical guide with actionable tools for the practical application of options math in a world that demands quantification. It serves as a valuable reference for advanced methods of evaluating issues of pricing, payoff, probability, and risk. In his characteristic approachable style, Thomsett simplifies complex hot button issues-such as strategic payoffs, return calculations, and hedging options-that may be mentioned in introductory texts but are often underserved. The result is a comprehensive book that helps traders understand the mathematic concepts of options trading so that they can improve their skills and outcomes.


Michael C. Thomsett has been writing for a living since 1978 and has published more than 90 books. These include 12 options books. His best-sellingGetting Started in Options has been published in nine editions and sold more than 300,000 copies. He also has developed and presented options webinars, and coaches on a live trading room every day and is a frequent speaker at trade shows and investment conventions. The author blogs on TheStreet.com, Seeking Alpha, Options Money Maker, Stockcharts.com, and social media.
Foreword5
Preface8
Contents11
List of Figures13
List of Tables15
Introduction—The Variability of Derivatives Trading17
1 Trading Goals and Objectives21
Basic Probability to Quantify Risk23
The Flaws of Implied Volatility (IV)26
Articulating Risk with Technical Signals28
Probability in an Uncertain World32
Bollinger Bands to Create a Probability Matrix38
Speculation Versus Hedging44
2 The Role of Fundamentaland Technical Analysis50
Analyzing the Impact of Fundamental Volatility51
Calculating Historical Volatility54
The Problem with Implied Volatility56
Fundamental Volatility Correlated to Stock Price Behavior58
The Effect of Fundamental Volatility on Options Risk63
The Proximity Factor64
3 Pricing of the Option73
PutCall Parity74
Upper and Lower Bounds79
Intrinsic Value80
Time Value82
Extrinsic Value (Volatility)84
Estimating Delta86
Estimating Gamma89
Calculating Relative Option Yield91
4 The Dividend Effect97
Dividends as Fundamental Indicators98
Dividends in Option Trading Decision—Total Return104
The Lumpy Dividend Effect109
Additional Dividend Calculations111
5 Return Calculations116
Breakeven Rate of Return117
Basis for Calculation: Stock Price or Premium at Risk124
Return on Investment126
The Rate of Return Calculation128
Return on Covered Calls Trades130
Calculating Covered Call Losses134
Calculating Adjusted Basis in Stock for Covered Call Trades136
Uncovered Option Returns136
Annualizing a Stock’s Return137
6 Strategic Payoff: The Single-Option Trade141
The Probability of Option Payoff142
Risk and Payoff Calculations: Long Calls and Puts144
The Long Call147
The Long Put150
Risk and Payoff Calculations: Uncovered Calls152
ITM Uncovered Calls153
OTM Uncovered Calls156
Risk and Payoff Calculations: Uncovered Puts158
Risk and Payoff Calculations: Covered Calls159
Risk and Payoff Calculations: Ratio Writes and the Covered Call166
Risk and Payoff Calculations: Covered Put171
Recalculation of Net Basis in Rolled Short Options174
7 Strategic Payoff: Spreads177
Risk and Payoff Calculations: Vertical Bull Spreads178
Bull Put Credit Spread179
Bull Call Debit Spread180
Bear Put Debit Spread182
Bear Call Credit Spread184
Risk and Payoff Calculations: Condors and Butterflies187
Condor188
Iron Condor189
Long Butterfly191
Short Butterfly194
Iron Butterfly196
Risk and Payoff Calculations: Synthetics198
Synthetic Long Stock199
Synthetic Short Stock201
Risk and Payoff Calculations: Horizontal Spreads203
Bull Calendar Spreads204
Installment Calendar Spreads207
Risk and Payoff Calculations: Diagonal Spreads210
8 Strategic Payoff: Straddles213
Risk and Payoff Calculations: Straddles215
Long Straddles216
Short Straddles219
Covered Straddles222
Risk and Payoff Calculations: Strangles225
Long Strangles226
Short Strangles228
Long Gut Strangle231
Short Gut Strangle233
Risk and Payoff Calculations: Strips and Straps235
Strip236
Strap240
Strategic Selection of Strikes243
9 Probability and Risk247
Abnormal Distribution of Options Trading248
Managing Abnormal Probability251
Aspects of Probability253
Human Nature and Risk256
Some Risk Theories258
The Role of Variance in Risk Perception261
Theory of Probability263
Interpreting Probability266
Random Variables in Options Trading267
10 Option Pricing Models271
The Black-Scholes Pricing Model273
Expansion of the Pricing Model275
Problems with Black-Scholes Inaccuracy278
11 Alternatives to Pricing Models284
Alternatives to Pricing Models—CAPM286
Difficulty of Volatility Forecasting290
Components of Basic Options Quantification (Chaps. 1–3)294
Applying the Basics to Manage Trades (Chaps. 4 and 5)295
Expanding the Basics to Define Profit and Loss Ranges (Chaps. 6–8)295
Conclusions of Risk and Pricing Models (Chaps. 9 and 10)296
Conclusion297
Appendix—Formulas300
Bibliography333
Index339