Top Research Papers on Options Trading

The Making of a Trader. The Marketplace. A Case for Options. Beyond the Basics. From the Short Side. Playing the Broad Market. When to Do What--and Why! Building a Team--The Day-Trading Firm. Getting the Right Tools. What Changes, What Stays the Same. Glossary. Index.

This technical note provides a brief introduction to option trading strategies. It covers pay-off diagrams and specifically introduces bull spreads, butterfly spreads and calendar spreads. It also introduces straddles, strips, and strangles.

The following sections are included:IntroductionTraders in Options MarketsProfit DiagramsOptions StrategiesCommon Options Price DataNaked Trades: The Basic Building BlocksHedged StrategiesSpread StrategiesEXTENSION 15.1: Collars, Ratio Spreads, Butterflies, and CondorsEXTENSION 15.2: Reinsurance Contracts and Call SpreadsCombination StrategiesSummaryCasesQuestions and Problems

George Fontanills makes it easy for you to master online options trading by walking you through a series of hypothetical trades that demonstrate how to compute the maximum risk, maximum profit, break-evens, and exit alternatives for each strategy.

Section I: Basic Concepts and Strategies. Section II: Option Price Behavior and Volatility. Section III: Trading Strategies. Section IV: Managing Positions. Section V: The Psychology of Trading.

Originally as a financial concept, options are introduced into supply chain area to improve the ability of handling demand uncertainty and hence seek better performance of the participants. We examine how trading options works in the market consisting of two retailers in both cooperative and non-cooperative scenarios. We find the optimal trading quantity is irrelevant to the options price in both situations, only depending on their current inventory, options in hand and demand information of the second period. Using bargaining theory, we analyze the outcome of trading, as well as the impact on...

This paper proves that the optimal exercise time for the holder of an American option depends upon the physical drift of the underlying asset and the utility of the option holder. We illustrate our results by applying them to several families of utility functions, namely the CARA, the HARA, and the expected return. While the option holder maximises his utility, the issuer gains from the difference between the price maximising exercise boundary and the exercise boundary performed by the option holder. We provide the numerical results which describe the effect of the physical drift and the risk ...

An option provides a bundle of economic characteristics, including leverage, exposure to the underlying asset, exposure to a particular dynamic trading strategy, and exposure to volatility and jumps. The wide variety of options traded on indexes and large stocks permits investors to select the particular economic characteristics of interest when buying and selling options. We group exchange-traded equity and index options into delta- and maturity-based buckets, which provide dierential exposure to these economic characteristics. We examine the determinants of volume, signed volume, open intere...

We use account-level transaction data to examine trading styles and profitability in a leading derivatives market. Approximately 66% of active retail investors predominantly hold simple, one-sided positions in only one class of options, whereas institutional investors are more likely to use complex strategies. Hypothesizing that the complexity of trading styles reflects investors’ skills, we examine the effect of options trading styles on investment performance. We find that retail investors using simple strategies lose to the rest of the market. For both retail and institutional investors, se...

We use account-level transaction data to examine trading styles and profitability in a leading derivatives market. We find that retail investors in particular favor a consistent trading strategy: approximately 70% of retail investors predominantly hold simple one-sided positions in only one class of options, while institutional investors are more likely to use multiple strategies with a range of complexity. Accordingly, we use trading style complexity as an ex ante measure of trading skills to demonstrate its significant effect on investment performance. We find that retail investors using sim...

Trgovanje opcijama je daleko složeniji posao od trgovanja osnovnim financijskim instrumentima, pa su mogucnosti dobitaka, ali i gubitaka velike. Pocevsi od definiranja pojma opcija i opcijskih ugovora, preko vrsta opcija, elemenata opcijskog ugovora, dolazi se do trgovanja opcijama na svjetskim burzama. Sve veci broj opcijskih ugovora iz godine u godinu dokazuje sve vecu popularnost ovih izvedenica u svijetu financija, no to ne znaci i njihovu konacnu afirmiranost.

Fundamental analysis and technical analysis. Traditional chart analysis. Option trading: real-life practicality. Economic policies affecting stocks trends.

A complete options manual for the options trader. Uses charts to show the normal value of the option position for the full range of stock price and time to expiration.

After executing option orders, options market makers turn to the stock market to hedge away the underlying stock exposure. As a result, the stock exposure imbalance in option transactions translates into an imbalance in stock transactions. This paper decomposes the total stock order imbalance into an imbalance induced by option transactions and an imbalance independent of options. The analysis shows that the option-induced imbalance significantly predicts future stock returns in the cross section controlling for the past stock and options returns, but the imbalance independent of options has o...

In this paper we follow a different approach by taking a first step towards an option valuation model which does not explicitly make use of unobservable State variables. Instead of using a stochastic variance variable directly, we assume that the variance of stock returns is determined by the trading activity in the stock or the options market, respectively. As we will see, this is consistent with many empirical studies which report a positive relationship between the volume and volatility of individual securities. To our knowledge, this is the first time that an option pricing model uses trad...

This title offers market-tested guidelines to understand the math and determine the profit potential of each option trade. Successful option trading requires that you understand and know how to use the mathematics underlying option prices. "The Mathematics of Options Trading" focuses on that math, providing you with the knowledge you need to both determine expected results of an option trade and calculate the optimum position size before committing capital. Based on never-before-published work and research, this straightforward book includes: clear-cut explanations of volatility and time to ex...

Some sensible option strategies deserve serious consideration by academics and personal finance authors

This work demonstrates the ability to recognize a certain class of informed trading exists which is based on private information that cannot be efficiently discounted into stock prices using machine learning algorithms and the rich features available for option markets.

Options are tools for managing risk. As financial derivatives, options make financial markets more complete. This article introduces the concept of options, pricing methods and common trading strategies, and uses the trading of AAPL as an example to show the application strategy of options in actual investment, which is a good demonstration for others to understand options trading.

Two traders were bullish on the stock market. The first translated his market opinion into a purchase of S&P 500 futures. The second bought slightly out-of-the-money call options instead. The market moved immediately lower. The futures trader began to feel heat as prices moved downward. Soon, he had to liquidate because the losses and potential losses were too great. The options trader was secure in the knowledge that no mater how low prices went, the trade would lose no more than the original premium paid up front. Prices began to rally. The futures trader had lost some confidence and did not...