The Volatility Edge in Options Trading New Technical Strategies for Investing in Unstable Markets

The Volatility Edge in Options Trading New Technical Strategies for Investing in Unstable Markets

“Jeff’s analysis is unique, at least among academic derivatives textbooks. I would definitely use this material in my derivatives class, as I believe students would benefit from analyzing the many dimensions of Jeff’s trading strategies. I especially found the material on trading the earnings cycle and discussion of how to insure against price jumps at known events very worthwhile.” –DR. ROBERT JENNINGS, Professor of Finance, Indiana University Kelley School of Business “This is not just another book about options trading. The author shares a plethora of knowledge based on 20 years of trading experience and study of the financial markets. Jeff explains the myriad of complexities about options in a manner that is insightful and easy to understand. Given the growth in the options and derivatives markets over the past five years, this book is required reading for any serious investor or anyone in the financial service industries.” –MICHAEL P. O’HARE, Head of Mergers & Acquisitions, Oppenheimer & Co. Inc. “Those in the know will find this book to be an excellent resource and practical guide with exciting new insights into investing and hedging with options.” –JIM MEYER, Managing Director, Sasqua Field Capital Partners LLC “Jeff has focused everything I knew about options pricing and more through a hyper-insightful lens! This book provides a unique and practical perspective about options trading that should be required reading for professional and individual investors.” –ARTHUR TISI, Founder and CEO, EXA Infosystems; private investor and options trader In The Volatility Edge in Options Trading, leading options trader Jeff Augen introduces breakthrough strategies for identifying subtle price distortions that arise from changes in market volatility. Drawing on more than a decade of never-before-published research, Augen provides new analytical techniques that every experienced options trader can use to study historical price changes, mitigate risk, limit market exposure, and structure mathematically sound high-return options positions. Augen bridges the gap between pricing theory mathematics and market realities, covering topics addressed in no other options trading book. He introduces new ways to exploit the rising volatility that precedes earnings releases; trade the monthly options expiration cycle; leverage put:call price parity disruptions; understand weekend and month-end effects on bid-ask spreads; and use options on the CBOE Volatility Index (VIX) as a portfolio hedge. Unlike conventional guides, The Volatility Edge in Options Trading doesn’t rely on oversimplified positional analyses: it fully reflects ongoing changes in the prices of underlying securities, market volatility, and time decay. What’s more, Augen shows how to build your own customized analytical toolset using low-cost desktop software and data sources: tools that can transform his state-of-the-art strategies into practical buy/sell guidance. An options investment strategy that reflects the markets’ fundamental mathematical properties Presents strategies for achieving superior returns in widely diverse market conditions Adaptive trading: how to dynamically manage option positions, and why you must Includes precise, proven metrics and rules for adjusting complex positions Effectively trading the earnings and expiration cycles Leverage price distortions related to earnings and impending options expirations Building a state-of-the-art analytical infrastructure Use standard desktop software and data sources to build world-class decision-making tools

User Ratings and Reviews

5 Stars Excelent book for advancent option traders
First learn the basic’s - then read Jeff’s other book on volatility and then step in the dark world of expiration day trading. Great book - read also my review on my blog [...] on the post of April 18th. I described a live trade I entered based on Jeff’s method.

5 Stars One of the best book
I like this Jeff Augen book very much his straight forward simple approach when explaining the Volatility. Many book talk about buying in the money options but Jeff has shown if you know the standard deviation you can be winner buying the out of money calls. Trading the Earning cycle is the best chapter he wrote. if you don’t understand the volatility then buy this book and get insight. How volatility can wipe out your profit he explains very well. You don’t find a big charts like other book has but the example he has given that will be enough for you to get going. I like this book I will recommended this book highly the people who really wants to understand volatility.

4 Stars Volatility Edge - College Math Knowledge Needed
This is a well written book but a good knowledge of college statistics is needed. Chapter 3 leaves out some necessary vocabulary which is available by going to the Internet. One should carefully test the book’s option strategies with spreadsheets or with an alert list that one can create in an on-line brokerage account like Fidelity.

I would recommend this book for anyone who wants to be more more in tune with being one’s own broker.

5 Stars Volatility is the key!!!
I’ve personally watched more option traders fail because they didn’t understand what volatilty can do to you. In the fall of 2008 I saw more money wasted by traders who couldn’t realize why they were losing money. One trader lost over 1 million dollars in 8 short hours simply because volatility was increasing faster than they thought possible.

Read this book if you are going to short sell options. You will appreciate this book and the education it provides.

5 Stars The only book you need to buy on options trading!!!
Why is this book so much better than all the other books on trading options? Why is it better than the two day, $3,000 seminars on trading options advertised on TV or on the Internet?

Three reasons: several trading strategies are clearly described; a new type of charting technique is introduced which allows traders to visually evaluate a stock’s price performance and then use that information to structure a trade that has a statistical edge; and numerous unique insights are presented that I had rarely or never seen in any other book or seminar. Incidentally the charting technique can be used very easily by traders who only trade stocks and not options.

I’ll briefly describe the trading strategies, charts, and insights in chapters 3 through 8.

Chapter 3: This is the most useful material ever presented in any book on volatility, how to illustrate volatility visually on a unique type of chart, and then using the chart to make trading decisions. The discussion of differential volatility (different volatility for upward price move than downward) is totally unique to this book. A trading strategy is presented on trading cycles in volatility, which is visually illustrated in the context of gaining an edge of standard option pricing models.

Chapter 4: I was not aware that bid ask spreads could chew up so much of the profit from complex trades. I also found the best discussion ever on how short-term volatility swings affect option prices.

Chapter 5: First, a superb trading strategy is presented based on Augen’s unique price charts. This strategy, based on a reversal of when price moves a specified number of standard deviations, as a trigger for entering trades, can be used very profitably by traders who only trade stocks. Note that a level of 1.5, 2, or 3 standard deviations can be used. Historical data on stocks can be downloaded for free from several websites. This section is worth its weight in gold. Second, I liked the section on trading synthetic stock. Traders who like to trade directionally will find ways to reduce their cost by selling an option against their long option, resulting in a reduced risk if wrong and a dramatically greater profit, if correct on direction. This section alone is worth its weight in platinum.

Chapter 6: Although there was not much material presented on calendar spreads, there is a very thorough discussion on diagonal spreads, which are closely related, with detailed mathematical examples. Also, the charts comparing Dow and OIH shows how to use charts in choosing which one would be a better candidate for a condor and where to set the short strikes.

Chapter 7: A complete chapter on trading volatility spikes before earnings are announced and volatility declines after the announcement. As the earnings cycle happens regularly four times a year, there are plenty of “fish” to catch. This chapter has detailed instructions on how to structure these trades.

Chapter 8: I had never seen a complete chapter on trading during the last week before options expiration. Augen boldly points out several characteristics of options expiration that may give the astute trader a statistical edge due to slight violations of actual trading versus the underlying statistical pricing model. I found the illustration of three different strategies for trading the Google expiration to be very helpful. The discussion of pinning behavior delves into more depth on this important topic than in any other options book.

Augen’s writing style is both exciting and very succinct. Therefore, I could not put the book down but as soon as I finished, I knew that I had to read it again, and more carefully! I highly recommend this great book for options traders as well as stock traders too!

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