Dynamic Hedging or Option Volatility & Pricing
Hi,
I have just got two books, Dynamic Hedging by Taleb and Option Volatility & Pricing by Natenberg. Could anyone tell me which book I should read first? I only know some basic knowledge about derivatives and am looking to learn some option trading strategies.
Thanks in advance
If you don't know Natenberg thoroughly, Dynamic Hedging would both be a waste of time and counter-productive (and likely confuse you more than anything).
Natenberg goes over basic strategies that are used. You will not know how to trade immediately after reading it. You should read it if you intend on trading options, but it won't, on its own, make you a trader. That said, Natenberg is in charge of trader education/training at a very good and successful prop here in Chicago.
Dynamic Hedging covers every conceivable aspect (in practicality) of hedging various risk parameters in exotic and vanilla options. It is more of a way to give you insight into the extent of all the risks that exist and how every factor interacts with other factors (mostly how various greeks act and interact under varying conditions and situations, as well as within a portfolio of different options) than it will give you any pure trading strategies.
[quote=You will not know how to trade immediately after reading it. You should read it if you intend on trading options, but it won't, on its own, make you a trader. [/quote]
Thanks for your advice, but what should I read (books, websites, etc..), in addition to Naternberg, that will teach me how to trade options?
Natenberg. I also suggest that you get a notebook and keep notes as you read so that you can refresh your memory before or after each reading. Natenberg is essentially the options bible and has all the info a textbook would have, but without the structure.
Reading won't do it. You have to get your feet wet and trade, or at the very least, shadow and speak with/work with/etc. people that do to get yourself ready. It is just a lot different once you are trading. Also, I don't think most people really understand what they are reading until they see it in action (how the greeks interact with each other, for example).
For an options desk though, let's be honest trading a personal account has very little resemblance to on a market making desk. That's not to say its useless, just that taking directional bets is not a whole lot like hedging a book.
Understanding risk profiles is very important. I mentioned this in another thread, but I do like how Taleb discusses topics such as "Shadow" greeks, which is a very practical consideration for a market making desk.
That said, Natenburg is a great primer, and Taleb would be a good practical application of topics from Natenburg imo.
What about Hull? I was under the notion that Hull was the "GoTo" options book. I even made my university decision (University of Toronto) just so I'd have a chance to attend Hull's lectures in my senior year and hopefully get an awesome rec letter.
Hull's book is great, but not everybody prefers that book, which is not specifically focused on options. He covers a lot of topics other than options (ie swaps) and his book is considered by some to be more academic and less 'practical'. I read Hull before I read Natenberg and there is a fair bit of overlap, but I preferred Natenberg TBH. Both books are very good some I wouldn't be surprised if some firms have differing preferences based on what their businesses focus on.
Thanks for your insight, Jerome. I guess I shouldn't even worry about Hull until my Sophmore year, consecutively after I complete an ODE and PDE course.
Would you reccomend any good begginers books on options (particularly equity options)? I just happened to order "Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks by Olmstead" today, and was wondering if there are other worthwhile books that I should also consider.
Also, is anyone aware of a decent options paper trading platform other than thinkorswim?
Natenberg hands down.
Don't even waste your time with Taleb's until you have a nice chunk of time that allows you to absorb the text.
Seriously, read a bit, get thinkorswim, and trade with their papermoney platform. You're in for a world of fun ;)..
The problem is that most of the books are written at an extremely low level and more geared towards beginners or are simply 'get rich quick through options' type books--usually not something even the level of Natenberg. If you read and can understand Natenberg, you will understand what options are and various other issues associated with options. If you combined Natenberg with some sort of root equity research knowledge (if you were going to use options as a tool for forms value type investing and what not), you could probably do alright.
Et occaecati magnam nesciunt non tempora. Facere incidunt consequuntur provident quo sapiente explicabo. Nemo et amet aperiam esse sapiente necessitatibus. Nam expedita dolores in aliquam aut unde. Autem quisquam maiores rerum ut. Aut tenetur reiciendis explicabo.
Sunt ducimus hic numquam libero et nisi aut iste. Voluptatibus et autem perferendis. Voluptatem est sit est minima sit qui.
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...