Systematic Options Trading Evaluating, Analyzing, and Profiting from Mispriced Option Opportunities

ISBN-10: 0137085494

ISBN-13: 9780137085491

Edition: 2011

List price: $79.99
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Description:

Sophisticated options traders need systematic, reliable approaches for identifying the best option combinations, underlying assets, and strategies. This book makes these approaches available for the first time. Leading-edge traders and researchers Sergey Izraylevich and Vadim Tsudikman treat the option market as a whole: an unlimited set of trading variants composed of all option combinations that can be constructed at any specific time moment (using all possible strategies and underlying assets). They introduce a system that permits thorough analysis and comparison of many option combinations in terms of both expected profitability and potential risk. For the first time, they formalize and classify more than a dozen criteria intended to select preferable trading alternatives from a vast quantity of potential opportunities, and show how to apply multiple valuation criteria concurrently to select the best possible trades. By applying these principles consistently, traders can systematically identify subtle price distortions using proven statistical parameters. They can gain a clear and consistent advantage over competing traders, transforming option trading into a continuous process of profit generation with tightly controllable parameters of risk and profitability.
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Book details

List price: $79.99
Copyright year: 2011
Publisher: FT Press
Publication date: 8/11/2010
Binding: Hardcover
Pages: 288
Size: 7.50" wide x 9.50" long x 1.00" tall
Weight: 1.738
Language: English

Introduction
Criteria as the Basis of a Systematic Approach
General Presentation and Review of Criteria Properties
The Main Tool for Solving the Selection Problem
Formal Definition
Philosophy of Criteria Creation
Mission Fulfilled by Criteria
Forecast as a Key Element of the Criterion
Classification of Criteria
Universal Criteria
Specific (Nonuniversal) Criteria
Review of the Main Criteria
Criteria Based on Lognormal Distribution
Description of Lognormal Distribution
Expected Profit on the Basis of Lognormal Distribution
Profit Probability on the Basis of Lognormal Distribution
Criteria Based on Empirical Distribution
Description of Empirical Distribution
Expected Profit on the Basis of Empirical Distribution
Profit Probability on the Basis of Empirical Distribution
Simplified Calculation Algorithm
Modifications of Empirical Distribution
Criteria Based on the Ratio of Expected Profit to Loss
Basic Concept and Criteria Calculation Method
Criteria Calculation Example
Criteria Based on Expert Distribution
Basic Concept and Criteria Calculation Method
Set of Standard Distributions
Combining Separate Standard Distributions into a Unified Probability Density Function
Criteria Calculation on the Basis of the Unified Probability Density Function
Construction and Valuation of Complex Strategies Based on the Unified Probability Density Function
Specific (Nonuniversal) Criteria
Break-Even Range
IV/HV Ratio
Relative Frequency Criterion
The Ratio of Normalized Time Value to the Coefficient of Absolute Price Changes Distribution
Evaluation of Criteria Effectiveness
Introduction
Methods of Criteria Effectiveness Evaluation
Correlation Between a Criterion and Profit as the Main Effectiveness Indicator
Transformation of the Criteria Effectiveness Indicator
The Dynamics of Transformed Effectiveness Indicators
Selection of the Averaging Period
Peculiarities of Criteria Effectiveness Evaluation
Number of Combinations Used in the Analysis
Expressing Profit
Expressing Effectiveness Indicators
Review of Criteria Effectiveness Indicators
Correlation Between Criterion and Profit Values
Correlation Between a Criterion and Profit Indexes
Correlation Between the Sharpe Ratios of Criterion and Profit
Areas Ratio
Other Effectiveness Indicators
Summary
The Main Areas of Criteria Application
Selection of Option Combinations
Introduction
Analysis of Criteria Effectiveness in the Selection of Option Combinations
Factors That Affect Option Combinations Selection
Absolute Values of the Criterion
Strategy and Underlying Assets
Simultaneous Analysis of Factors Affecting Combinations Selection
Multistrategy, Long-Term Evaluation of Criteria Effectiveness
Methods
Results
Summary
Selection of Option Strategies
Introduction
Evaluation of Criterion Effectiveness by Ranking Analysis
Methods of Ranking Analysis
Results of Ranking Analysis
Generalized Ranking Analysis and Introduction of the Threshold Parameter
Results of Generalized Ranking Analysis
Maximum Obtainable Values of the Criterion Effectiveness Coefficient
Traditional Methods of Evaluating the Criterion Effectiveness
Synthetic Approach to Criterion Effectiveness Analysis
The Model for Optimizing the Threshold Parameter
Summary
Selection of Underlying Assets
Introduction
Analysis of Criteria Effectiveness in Selection of Underlying Assets
Multistrategy, Long-Term Evaluation of Criteria Effectiveness
Methods
Results
The Optimization Model for the Number of Underlying Assets
Utility Indicators
Utility Functions
Convolution of Utility Functions and Deriving Optima for Different Strategies and Criteria
Summary
Multicriteria Analysis
Basic Concepts of Multicriteria Selection as Applied to Options
Introduction
The Pareto Set
The Algorithm of Forming the Pareto Set
Widening the Pareto Set and the "Layer" Notion
Convolution
Comparative Analysis of Multicriteria and Monocriterion Selection Effectiveness
Comparative Analysis of Two Multicriteria Selection Methods: Pareto Versus Convolution
Summary
The Impact of Criteria Correlation on Multicriteria Selection
Introduction
Evaluation of Criteria Interrelationship
Criteria Correlation and Profitability of Pareto Selection
Criteria Correlation and Profitability of Selection Using the Convolution Method
Summary
Conclusion
Bibliography
Appendix Basic Notions
Index
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