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

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 9

Risk Measurement II

Just as an option’s theoretical value is sensitive to changes in market conditions, the sensitivities themselves also change as market conditions change. This underscores an important aspect of option trading: nothing remains constant. Depending on market conditions, the same position can exhibit a wide range of risk characteristics. Today’s small risk can become tomorrow’s big risk.

Although it is impractical to analyze every potential risk, intelligent trading of options still requires us to consider the risk of a position under a wide variety of market conditions. Every serious trader’s education must include an understanding of the many different ways in which the risk of a position can change. Having some awareness ...

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