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
