Best way to learn options
I'm going to be shadowing a commodity options trader and I only know the basics of options. I know how to tell if a profit or loss is made for a call/put and I "know" the basics of the greeks and what they indicate. I been using sites like investopedia to find out information but was wondering if you guys can help point me in the right direction
read Lawrence McMillan: Options as a Strategic Investment and if possible, start a paper portfolio for whatever strategy you're trying to master.
can't speak to commodities, most of what we do would be collars for executives with concentrated positions as well as covered call writing, so hopefully some commodity guys can chime in.
I can't do much to answer your question, but that sounds like an awesome shadowing opportunity. Let us know what it's like.
Natenberg's Option Volatility and Pricing is very good.
delete
This has been the bible everywhere I've been and seen in commodity options. Hull's "Options, Futures, and Other Derivatives" is a good book as well as "Shoulda, Woulda, Coulda" by Charles Cottle is another. But everybody does Natenberg.
Hull is the GOAT author on options.
For commodities I guess what you'd be looking at are options on futures? That's an interesting dynamic because of contago/backwardation etc.
I'd reccomend get a great understanding of commodities first, and then base what you learn about options off of that. The most important thing to an option trader is the greeks, as if you're not aware of your risk exposures you'll be fleeced by the smarter option traders.
Like setarco said, you should learn the futures curve dynamics for the commodities you're going to be trading and then learn the options. In addition to reading books, I would get/create an option pricing calculator and change one input and see what happens to each of the greeks. Do this for numerous scenarios and strikes so you can get a feel of what will happen in certain environments. All of this will help, but you'll learn infinitely more on the trading floor.
Going through Paul Wilmott's book right now, a bit more readable (I think) than Hull's work but both are good. Recommend that as well.
the best way is to grab one of those books above and actually start trading them.
Hey guys, I started learning more about the greeks and risk exposure and I do still feel over whelmed with there is to learn. Trading right now is out of question for me right now.
Anyone here familiar with the CBOT and exit opps and such? The people here seem a lot different then bankers and seem like fun/informal people. I do want to go to banking and either be in IBD or maybe S&T, but it is extremely competitive for non targets.
I do want to end up in private equity or a HF, preferably in NYC, but I have a lot of connections in Chicago and will be close to friends/family
Just watch his position. What happens to his greeks as he puts on trades, why did he set his vols/sheets a certain way, why did he put on that position, how are the greeks related, etc. Learning about the greeks helped me a ton...For instance, assuming you have a constant vol across all months, do the deltas get larger or smaller as you go further back? If you have two options equidistant from at-the-money, buying the one with a higher vega and selling the one with a lower vega (in a fence, for instance), are you net short/long gamma? How can you be long gamma but short vega? What is the delta of an option that never expires? Those are questions that after being humiliated and learning I felt like I had a better understanding. Of course there's much more but yeah, no one jumps in and just starts trading right off the bat. It's literally a constant learning experience and things that will make you go "wait - what?" Also watch futures and maybe paper trade them
Paul Brittain and Carley Garner put out a book on commodity options. One of the few trading books I'd recommend to anyone.
Learning Options (Originally Posted: 06/06/2011)
.
http://www.amazon.com/Fundamentals-Futures-Options-Roger-Clarke-ebook/d…
Just got this on my Kindle free to test the waters before getting a book that cost $$$. I think I will get http://www.amazon.com/gp/offer-listing/0137142862/ref=sr_1_2_olp?ie=UTF… this book after I read through it.
Fuck it, I just ordered that book you recommended
Good choice, that in addition to your internship/shadowing should be a good fit.
Make a point of going to Ceres at the CBOT, at least once, its trashy in my opinion. Be warned -- strongest drinks on the planet.
check out john hull's options, futures, and other dervis book.
once you have some fundamentals down, try coding a black scholes and greeks calculator in excel using vba. or ask the desk what code they develop in, if they do at all. whats nice is the calculator can be a good learning tool. play around with each variable to see how it would effect the price of the option. i've never dealt with commod options but you'll have to do some research on finding quantifiable variables that will also effect the price of nat gas.
then play around with the demo account of interactive brokers, username: "edemo" and password "demouser." and see if they have nat gas options to play with. see what its like to lose or win and play with vanilla spreads. also learn the greeks well and how to hedge them.
best of luck!
The leaders at Sempra Energy Trading always passed out the following book:
Trading Natural Gas: Cash, Futures, Options and Swaps
Natenberg is pretty much the bible. What is important is to gain experience.
Apart from those books, which are mandatory, try this software, is free: http://www.samoasky.com/
John Hull
I too have a question. What investments could a commodity trading company make while maximizing its market position while maintaining responsible risk profile?
Ipsum illum quidem corrupti non voluptatem. Aperiam sit praesentium maiores est asperiores voluptatem omnis sit. Optio sed labore voluptatibus unde voluptas ex repellat. Ut alias omnis soluta ut. Fugit vitae debitis omnis soluta. Culpa alias facere sit ut dolores in magnam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Quas quod sed dolorum consequatur et. Recusandae velit magnam aut exercitationem sint veniam qui et. Recusandae ducimus itaque maiores quod numquam labore. Voluptate dolor minima excepturi sit fugiat ullam sapiente. Quibusdam consectetur aperiam inventore amet.
Pariatur quia molestiae nulla enim nisi veritatis voluptatem. Id rem illo a. Nulla cupiditate nisi a quos unde nisi.
Fugit pariatur fugit ullam. Qui sit excepturi dolores eius. Expedita aut nihil temporibus itaque earum iste libero.