Published by RiskDoctor, Inc.
1. Options (Finance)
2. Risk Management
1. Title
2001
i Contents
c o n t e n t s
c h a p t e r 1
Picking Up Where The Rest Leave Off Synthetics
The Nature of a Position
Story: Covered-Write
Another Word about Covered Writes
Locks
Synthesis: Using a Conversion/Reversal (C/R)
Conversion/Reversal Value Equations
Put-Call Parity 9
Position Dissection - Lesson I
Net Call Contracts and Net Put Contracts
Common Locks Carded Up
Tools for Dissection
Synthetic Alteatives
10 Examples of Long
The Risk Profiles
Options Trading: The Hidden Reality
Theta
Vega or Omega
Rho
Dividends
Exercise Nuances Involving Equities with Dividends
Nuances of Different Styles of Contracts
Exercise Nuances as they Relate to Interest Income or Expense
To Exercise or Not To Exercise?
Renting Options
Pin Risk
After Expiration News Event
Do Not Forgot to Exercise
Renting Stock Options
Cost of Doing Business
A Final Word
c h a p t e r 2
Strangles And Straddles
Reasons for Buying and Selling Premium
Reasons for Shorting Premium
Pontification: Shorting Naked Premium
Properties of Strangles and Straddles
Gamma Scalping
Dynamic Gamma Scalping
Spread Scalping
Break-Even Analysis
Missing the Hedge
c h a p t e r 5
Verticals (Bull and Bear Spreads) & Collars
Speculative Considerations When Using Verticals
Premium: Time and Implied Volatility Effects
Premium Perspective
Pricing and the Greeks
Hedging By Collaring Long Underlying Into a Vertical
Rolling/Adjusting Speculative Trades Using Verticals
Legging Options in a Click
Adjusting the Leg Size
Volatility Trading
Pricing of Ratios
Defensive Flattening of Ratio Spreads
Assessing Risk in Ratio Spreads and Back Spreads
Through Ratio Analysis
Unbelievable Moves
Conclusion
c h a p t e r 6
Wingspreads
Butterfly Structure
Iron Wingspreads
The Greeks of a Butterfly
-Delta
-Gamma
-Vega
-Theta
Comparing the Pricing of Butterflies
Using Butterflies to Speculate Directionally Can be a Challenge
Time Out for a Quick Lesson
Options Matrix
Condors and Stretched out Condors
Embedded Butterflies in Wide Butterflies
Wingspread Dissection in Practice
Skip-Strike-Flies
Ratioed Verticals/Unbalanced Butterflies
Why Market Makers use Dissection
Conclusion
c h a p t e r 7
Multi Expiration Spreads
Jelly Rolls
Jelly Roller
Calendar Spreads: Briefly
Time Spread Value
Time Spread Price Arc as a Pricing Tool
Waing: Don’t be a Sucker
Diagonals
Exercise/ Assignment
Double Diagonals, Straddle-Strangle-Swaps,
Calendarized Wing Spreads
Double Time Spreads or Strangle Swaps
c h a p t e r 8
Market Makers Insights
The Edge
Fair Value Equations Including Banking
Interest Rate Exposure
Banking: The Concepts of Borrowing and Lending
Short Stock Inventory Problems and Squeezes
Equity (Stock) Reversal (Without Dividend)
Implied Interest Rate on an Equity
Conversion/Reversal (No Dividend)
Interest Rate Setting in Your Options Pricing Tool
Equity Conversion/ Reversal (With Dividend)
Jelly Roll: Equities
OEX Conversion/ Reversal
OEX Synthetic Futures and Theoretical Values
The OEX Early Exercise
Boxes
European-Style Boxes
Implied Interest Rate on a Box Trade
The Equity Box
Exercising and the Money
Explanation of Residual Price
Stocks Involved in Tender offers
1. Deal Date
2. The Pro Rata Factor
3. Borrowing Shares
The Chiron Tender Offer
Other Tid-Bits
Tax Games
Interdepartmental Games
Bad Creditor Borrowing Games
Conclusion
c h a p t e r 9
Hybrid Hedging
Suitability Issues
Time Requirements
Capital Allocation
Actual Structure
Wingspread Dissection
Example Pre-Trade Confirmation
Closer to Delta Neutral Anyone?
How About a Play in Either Direction?
Comparison of Ratios
c h a p t e r 1 0
You Can Live With or Without Skew
Where Does the Skew Come From?
Skew Shapes
Modeling the Skew
The Day the Skew was Bo (For the Author)
Skew Library
-Reversal
-Long Box
-Long At-the-Money Call
-Long Out-of-the-Money Put
-Long At-the-Money Straddle
-Short At-the-Money Strangle
-Bull Spread
-Bear Spread
-At-the-Money Butterfly
-Stretched-Out Condor
-Call Ratio Spread
-Put Ratio Spread
-Call Back Spread
-Put Back Spread
-Risk Conversion
-Risk Reversal
-Short Semi-Future
-Call Batwings
-Put Batwings
-Batman Spreads
c h a p t e r 1 1
Option Dialogue
Getting Started
Pulling the Trigger
1. Options (Finance)
2. Risk Management
1. Title
2001
i Contents
c o n t e n t s
c h a p t e r 1
Picking Up Where The Rest Leave Off Synthetics
The Nature of a Position
Story: Covered-Write
Another Word about Covered Writes
Locks
Synthesis: Using a Conversion/Reversal (C/R)
Conversion/Reversal Value Equations
Put-Call Parity 9
Position Dissection - Lesson I
Net Call Contracts and Net Put Contracts
Common Locks Carded Up
Tools for Dissection
Synthetic Alteatives
10 Examples of Long
The Risk Profiles
Options Trading: The Hidden Reality
Theta
Vega or Omega
Rho
Dividends
Exercise Nuances Involving Equities with Dividends
Nuances of Different Styles of Contracts
Exercise Nuances as they Relate to Interest Income or Expense
To Exercise or Not To Exercise?
Renting Options
Pin Risk
After Expiration News Event
Do Not Forgot to Exercise
Renting Stock Options
Cost of Doing Business
A Final Word
c h a p t e r 2
Strangles And Straddles
Reasons for Buying and Selling Premium
Reasons for Shorting Premium
Pontification: Shorting Naked Premium
Properties of Strangles and Straddles
Gamma Scalping
Dynamic Gamma Scalping
Spread Scalping
Break-Even Analysis
Missing the Hedge
c h a p t e r 5
Verticals (Bull and Bear Spreads) & Collars
Speculative Considerations When Using Verticals
Premium: Time and Implied Volatility Effects
Premium Perspective
Pricing and the Greeks
Hedging By Collaring Long Underlying Into a Vertical
Rolling/Adjusting Speculative Trades Using Verticals
Legging Options in a Click
Adjusting the Leg Size
Volatility Trading
Pricing of Ratios
Defensive Flattening of Ratio Spreads
Assessing Risk in Ratio Spreads and Back Spreads
Through Ratio Analysis
Unbelievable Moves
Conclusion
c h a p t e r 6
Wingspreads
Butterfly Structure
Iron Wingspreads
The Greeks of a Butterfly
-Delta
-Gamma
-Vega
-Theta
Comparing the Pricing of Butterflies
Using Butterflies to Speculate Directionally Can be a Challenge
Time Out for a Quick Lesson
Options Matrix
Condors and Stretched out Condors
Embedded Butterflies in Wide Butterflies
Wingspread Dissection in Practice
Skip-Strike-Flies
Ratioed Verticals/Unbalanced Butterflies
Why Market Makers use Dissection
Conclusion
c h a p t e r 7
Multi Expiration Spreads
Jelly Rolls
Jelly Roller
Calendar Spreads: Briefly
Time Spread Value
Time Spread Price Arc as a Pricing Tool
Waing: Don’t be a Sucker
Diagonals
Exercise/ Assignment
Double Diagonals, Straddle-Strangle-Swaps,
Calendarized Wing Spreads
Double Time Spreads or Strangle Swaps
c h a p t e r 8
Market Makers Insights
The Edge
Fair Value Equations Including Banking
Interest Rate Exposure
Banking: The Concepts of Borrowing and Lending
Short Stock Inventory Problems and Squeezes
Equity (Stock) Reversal (Without Dividend)
Implied Interest Rate on an Equity
Conversion/Reversal (No Dividend)
Interest Rate Setting in Your Options Pricing Tool
Equity Conversion/ Reversal (With Dividend)
Jelly Roll: Equities
OEX Conversion/ Reversal
OEX Synthetic Futures and Theoretical Values
The OEX Early Exercise
Boxes
European-Style Boxes
Implied Interest Rate on a Box Trade
The Equity Box
Exercising and the Money
Explanation of Residual Price
Stocks Involved in Tender offers
1. Deal Date
2. The Pro Rata Factor
3. Borrowing Shares
The Chiron Tender Offer
Other Tid-Bits
Tax Games
Interdepartmental Games
Bad Creditor Borrowing Games
Conclusion
c h a p t e r 9
Hybrid Hedging
Suitability Issues
Time Requirements
Capital Allocation
Actual Structure
Wingspread Dissection
Example Pre-Trade Confirmation
Closer to Delta Neutral Anyone?
How About a Play in Either Direction?
Comparison of Ratios
c h a p t e r 1 0
You Can Live With or Without Skew
Where Does the Skew Come From?
Skew Shapes
Modeling the Skew
The Day the Skew was Bo (For the Author)
Skew Library
-Reversal
-Long Box
-Long At-the-Money Call
-Long Out-of-the-Money Put
-Long At-the-Money Straddle
-Short At-the-Money Strangle
-Bull Spread
-Bear Spread
-At-the-Money Butterfly
-Stretched-Out Condor
-Call Ratio Spread
-Put Ratio Spread
-Call Back Spread
-Put Back Spread
-Risk Conversion
-Risk Reversal
-Short Semi-Future
-Call Batwings
-Put Batwings
-Batman Spreads
c h a p t e r 1 1
Option Dialogue
Getting Started
Pulling the Trigger