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Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition by Sheldon Natenberg

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 21

Position Analysis

Investors or speculators in option markets often have a particular view of market conditions in terms of either direction or volatility. They attempt to profit from this view through the selection of spreading strategies such as those discussed in Chapters 11 and 12. In Chapter 13, we looked at the risk characteristics of some of these strategies under changing market conditions. Because each spread consisted of a limited number of contracts, it was a relatively simple matter to determine the risks that each spread entailed.

An active option trader, such as a market maker, may build up much more complex positions consisting of many different options across a wide range of exercise prices and expiration months. Unlike simple ...

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