Positional Option Trading. Euan Sinclair
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Summary
10 CHAPTER 8: Directional Option Strategy Selection Long Stock Long Call Long Call Spread Short Put Covered Calls Components of Covered Call Profits Covered Calls and Fundamentals Short Put Spread Risk Reversal Aside: The Risk Reversal as a Skew Trade Ratio Spreads Conclusion Summary
11 CHAPTER 9: Trade Sizing The Kelly Criterion Non-normal Discrete Outcomes Non-normal Continuous Outcomes Uncertain Parameters Kelly and Drawdown Control The Effect of Stops Conclusion Summary
12 CHAPTER 10: Meta Risks Currency Risk Theft and Fraud Example One: Baring's Bank Example Two: Yasumo Hamanaka, aka “Mr. Copper” Example Three: Bernie Madoff Index Restructuring Arbitrage Counterparty Risk Conclusion Summary
13 CONCLUSION
14 APPENDIX 1: Traders' Adjustments to the BSM Assumptions The Existence of a Single, Constant Interest Rate The Stock Pays No Dividends Absence of Taxes The Ability to Trade and Short the Underlying Nonconstant Volatility Conclusion Summary
15 APPENDIX 2: Statistical Rules of Thumb Converting Range Estimates to Option Pricing Inputs Rule of Five Rule of Three
16 APPENDIX 3: Execution Example
17 REFERENCES
18 INDEX
List of Tables
1 Chapter 1TABLE 1.1 Statistics for the Short One-Year ATM Daily Hedged Straddle With and W...
2 Chapter 3TABLE 3.1 Thirty-Day Volatility Forecasts for the S&P 500 from 1990 to t...TABLE 3.2 Thirty-Day Volatility EWMA Forecasts for the S&P 500 from 1990 ...
3 Chapter 4TABLE 4.1 Summary Statistics for the S&P 500 Variance PremiumTABLE 4.2 Summary Statistics for the Dow Jones, NASDAQ 100, and Russell 2000 Var...TABLE 4.3 Summary Statistics for the VIX Sorted by QuintilesTABLE 4.4 The Size and Significance of the Variance Premium in Commodity OptionsTABLE 4.5 The Correlation of the Variance Premium Within Commodity SectorsTABLE 4.6 The Correlation of the Variance Premium Between Commodity SectorsTABLE 4.7 The Average Return to a Short 1-Month Variance Swap for Stock Options ...
4 Chapter 5TABLE 5.1 Postulated Risk and Behavioral Reasons for the Smart Beta Factors
5 Chapter 6TABLE 6.1 Summary Statistics for the Returns of a Fairly Priced Short StraddleTABLE 6.2 Summary Statistics for the Returns of a Fairly-Priced Short StrangleTABLE 6.3 Summary Statistics for the Returns of a Mispriced Short StraddleTABLE 6.4 Summary Statistics for the Returns of a Poorly Priced Short StrangleTABLE 6.5 Summary Statistics for the Returns of a Short Straddle When Our Direct...TABLE 6.6 Summary Statistics for the Returns of a Short Strangle When Our Direct...TABLE 6.7 Comparing Results for Straddles and Strangles if the Underlying Has th...TABLE 6.8 Comparing Results for Straddles and Strangles When Hedging DailyTABLE 6.9 Summary Statistics for the Returns of a Fairly-Priced ButterflyTABLE 6.10 Summary Statistics for the Returns of a Fairly Priced CondorTABLE 6.11 Summary Statistics for the Returns of a Badly Priced ButterflyTABLE 6.12 Summary Statistics for the Returns of a Badly Priced CondorTABLE 6.13 Summary Statistics of S&P 500 Returns from 1990 to 2018TABLE 6.14 Summary Statistics of the PL Distribution for the Straddle Spread and...TABLE 6.15 Summary Statistics of the PL Distribution for the Straddle Spread and...TABLE 6.16 Summary Statistics for the Returns of a Strangle with an Implied Vola...TABLE 6.17 The Results for Both the Flat Skew Condor and the Skewed CaseTABLE 6.18 The Put Prices of the SPY June 2020 Expiration on July 30, 2019 (Down...TABLE 6.19 The Summary Statistics from Selling $1000 Vega of the 210/360 SPY Str...TABLE 6.20 The Dollar Premium of Options Over Their Being Priced at the ATM Vola...TABLE 6.21 The Summary Statistics from Selling $1000 Vega of 260/335 SPY Strangl...TABLE 6.22 Prices and Strikes of Possible Hedging Options for Our Short 260 Put ...
6 Chapter 7TABLE 7.1 A Comparison of Risk-Neutral and Subjective Option PricesTABLE 7.2 Projected Performance Numbers for Long Positions in Different Strike 3...TABLE 7.3 Projected Performance Numbers for Long