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Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit

ISBN: 978-0-470-88519-2
330 pages
May 2010
Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit (047088519X) cover image
Veteran options trader Dan Passarelli explains a new methodology for option trading and valuation. With an introduction to option basics as well as chapters on all types of spreads, put-call parity and synthetic options, trading volatility and studying volatility charts, and advanced option trading, Trading Option Greeks holds pertinent new information on how more accurate pricing can drive profit.

Most options traders focus on strategies such as covered calls, vertical spreads, butterflies and condors, and so on. But traders often don't know how to use the "greeks"—the five factors that influence an option's price—to trade more effectively.

The "greeks" (Delta, Gamma, Theta, Vega, Rho) are tools to measure minute changes in an option's price based on corresponding changes in:

  • Interest rates
  • Time to expiration
  • Price changes in the underlying security
  • Volatility
  • Dividends

Using the greeks can lead to more accurate pricing information that will alert an option trader to mispriced derivatives that can be exploited for profit. In straightforward language and making use of charts and examples, Passarelli explains how to use the greeks to be a better options trader.

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Acknowledgments.

Foreword (William J. Brodsky).

Introduction.

Part I The Basics of Option Greeks.

1 The Basics.

2 Greek Philosophy.

3 Understanding Volatility.

4 Option-Specific Risk and Opportunity.

5 An Introduction to Volatility-Selling Strategies.

6 Put-Call Parity and Synthetics.

7 Rho.

8 Dividends and Option Pricing.

Part II Spreads.

9 Vertical Spreads.

10 Wing Spreads: Condors and Butterflies.

11 Calendar and Diagonal Spreads.

Part III Volatility.

12 Delta-Neutral Trading: Trading Implied Volatility.

13 Delta-Neutral Trading: Trading Realized Volatility.

14 Studying Volatility Charts.

Part IV Advanced Option Trading.

15 Straddles and Strangles.

16 Complex Spreads.

17 The Trader’s Thought Process.

Index.

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Dan Passarelli began his career as a floor trader at the Chicago Board Options Exchange (CBOE), trading equity options and later agricultural options and futures on the floor of the Chicago Board of Trade (CBOT). He currently provides options education to retail and institutional traders at a premier brokerage firm. Passarelli was an instructor at the Options Institute, which is the educational arm of the CBOE. He also worked with the Options Industry Council (OIC), educating retail traders via podcasts, webcasts, live seminars, and has written numerous published articles.
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"A must-read for individuals who are serious about trading options."
James Bittman
Author, Trading Options as a Professional

"Dan's book is a primer for options aficionados. Without bogging you down with super-heavy math, he walks you through the key principles and shows you what matters the most to your trading portfolio."
Fari Hamzei
Founder, Hamzei Analytics, LLC

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