May 2012
Beginner
240 pages
4h 57m
English
book
The Option Trader’s Hedge Fund: A Business Framework for Trading Equity and Index Options
by Dennis A. Chen, Mark Sebastian
Content preview from The Option Trader’s Hedge Fund: A Business Framework for Trading Equity and Index OptionsBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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8. Understanding Volatility
You are probably aware of how the pricing model works. To fully understand how to trade options, potential hedge fund traders need a strong understanding of how options function.
All option pricing models are very different. The older ones like Black-Scholes and the Whaley model are somewhat antiquated, but much like automobiles or houses, even the most advanced models rely on a certain amount of fundamental information. All models need five factors: underlying price, strike price, time to expiration, cost of carry, and forward volatility. Four of the five are pretty simple...and then there is volatility. To a hedge fund trader (and all traders, for that matter), volatility is by far the number one determinant of success. ...
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