Options Math for Traders: How To Pick the Best Option Strategies for Your Market Outlook + Website

Praise for Options Math for Traders

"Just as he does every week on CNBC′s Options Action, Scott helps everyone from a basic to advanced trader understand options in a clear, straightforward manner. Scott has the ability to transfer his immense knowledge of options in a way that is inviting rather than intimidating and can help traders select an options strategy to best reflect their thoughts on the market."
JJ Kinahan, Chief Derivatives Strategist, TD Ameritrade

"Options trading for individual investors has come a long way from just simply ′going long′ a call or a put. Understanding the basic mathematical principles behind options pricing, as well as basic strategies, will help build a solid foundation for the aspiring trader. Scott Nations combines those principles with real–world experience to create a winning combination."
Kris Monaco, Head of New Product Development, International Securities Exchange LLC

"For anyone who finds options or the concepts of volatility challenging, Scott helps simplify them. Scott helps options traders of all backgrounds better understand these markets and trade more profitably."
Michael Khouw, Managing Director, Head of Equity Derivatives, CRT Capital Group, LLC; CNBC contributor

Divided into three informative parts, Options Math for Traders + Website addresses some of the most essential issues of this discipline, from the volatility risk premium, skew, and the bid/ask spread to time value and decay, option pricing models, and implied volatility. Along the way, it also offers valuable guidance into using proven option strategies, including covered calls/overwrites, selling puts, buying calendar spreads, risk reversals, and vertical spreads.

Options Math for Traders + Website puts an emphasis on practical application. To that end, this book provides readers with exclusive access to a companion website filled with supplementary materials,??allowing you to continue to learn in a hands–on fashion long after closing the book.

Preface ix

Acknowledgments xvii

PART ONE The Basics

CHAPTER 1 The Basics 3

CHAPTER 2 Direction, Magnitude, and Time 17

CHAPTER 3 Volatility 25

CHAPTER 4 Option Pricing Models and Implied Volatility 37

PART TWO The Phenomena

CHAPTER 5 The Volatility Risk Premium 51

CHAPTER 6 Implied Volatility and Skew 63

CHAPTER 7 Time Value and Decay 77

CHAPTER 8 The Bid/Ask Spread 87

CHAPTER 9 Volatility Slope 105

PART THREE The Trades

CHAPTER 10 Covered Calls 115

CHAPTER 11 Selling Puts 151

CHAPTER 12 Calendar Spreads 171

CHAPTER 13 Risk Reversal 197

CHAPTER 14 Vertical Spreads 217

Appendix 235

Index 243

SCOTT NATIONS is President and CIO of NationsShares, a division of Fortress Trading, Inc. Previously, he was head trader for Sovereign Capital, a proprietary trading firm, and a floor trader at both the Chicago Board of Trade and the Chicago Mercantile Exchange. Nations is also a financial engineer, creating, testing, patenting, and licensing a number of sophisticated option–based and option–enhanced products including the Nations Enhanced Covered Call Index; the Nations Enhanced Collar Index; the Nations Option Levered Index; and the Nations VolDex. He appears on CNBC several times each week and serves as one of the regular panelists on CNBC′s weekly Options Action show.

"Options Math for Traders + Website: How to Pick the Best Option Strategies for Your Market Outlook by Scott Nations is an excellent educational tool for the investor wishing to utilize options in their investment strategies.  Options Math for Traders guides you and helps you understand the thought process when evaluating and analyzing risk and reward on an options trade". Dax Rodriguez, President, Livevol, Inc.