Volatility, Practical Options Theory by Iqbal, Adam S. -- Read -- Imperial Library of Trantor

Index

Cover Table of Contents Preface Acknowledgments About the Author CHAPTER 1: Volatility and Options

1.1 WHAT IS AN OPTION? 1.2 OPTIONS ARE BETS ON VOLATILITY 1.3 OPTION PREMIUMS AND BREAKEVENS 1.4 STRIKE CONVENTIONS 1.5 WHAT IS VOLATILITY? 1.6 TRADER'S SUMMARY

CHAPTER 2: Understanding Options Without a Model

2.1 VANILLA OPTIONS 2.2 MAKING ASSUMPTIONS 2.3 UNDERSTANDING Vt WITH ECONOMIC ASSUMPTIONS 2.4 DELTA AND DELTA HEDGING 2.5 THE VALUE FUNCTION 2.6 DEFINING DELTA 2.7 UNDERSTANDING DELTA 2.8 DELTA AS THE PROBABILITY OF AN IN‐THE‐MONEY EXPIRY 2.9 APPLYING DELTA AS THE PROBABILITY OF AN ITM EXPIRY IN PRACTICAL TRADING 2.10 CONSTRUCTING Vt 2.11 OPTION DELTAS 2.12 A NOTE ON FORWARDS 2.13 PUT–CALL PARITY 2.14 TRADER'S SUMMARY

CHAPTER 3: The Basic Greeks: Theta

3.1 THETA, θ 3.2 TRADER'S SUMMARY

CHAPTER 4: The Basic Greeks: Gamma

4.1 GAMMA, Г 4.2 GAMMA AND TIME DECAY 4.3 TRADERS' GAMMA, Гtrader 4.4 GAMMA–TIME DECAY TRADE‐OFFS IN MORE DETAIL 4.5 PnL EXPLAIN 4.6 DELTA HEDGING AND PnL VARIANCE 4.7 TRANSACTION COSTS 4.8 DAILY PnL EXPLAIN 4.9 THE GAMMA PROFILE 4.10 TRADER'S SUMMARY

CHAPTER 5: The Basic Greeks: Vega

5.1 VEGA 5.2 UNDERSTANDING VEGA VIA THE PDF 5.3 UNDERSTANDING VEGA VIA GAMMA TRADING 5.4 VEGA OF AN ATMS OPTION ACROSS TENORS 5.5 VEGA AND SPOT 5.6 DEPENDENCE OF VEGA ON IMPLIED VOLATILITY 5.7 VEGA PROFILES APPLIED IN PRACTICAL OPTIONS TRADING 5.8 VEGA AND PnL EXPLAIN 5.9 TRADER'S SUMMARY

CHAPTER 6: Implied Volatility and Term Structure

6.1 IMPLIED VOLATILITY, σimplied 6.2 TERM STRUCTURE 6.3 FLAT VEGA AND WEIGHTED VEGA GREEKS 6.4 FORWARD VOLATILITY, FORWARD VARIANCE, AND TERM VOLATILITY 6.5 BUILDING A TERM STRUCTURE MODEL USING DAILY FORWARD VOLATILITY 6.6 SETTING BASE VOLATILITY USING A THREE‐PARAMETER GARCH MODEL 6.7 VOLATILITY CARRY AND FORWARD VOLATILITY AGREEMENTS 6.8 TRADER'S SUMMARY

CHAPTER 7: Vanna, Risk Reversal, and Skewness

7.1 RISK REVERSAL 7.2 SKEWNESS 7.3 DELTA SPACE 7.4 SMILE IN DELTA SPACE 7.5 SMILE VEGA 7.6 SMILE DELTA 7.7 TRADER'S SUMMARY

CHAPTER 8: Volgamma, Butterfly, and Kurtosis

8.1 THE BUTTERFLY STRATEGY 8.2 VOLGAMMA AND BUTTERFLY 8.3 KURTOSIS 8.4 SMILE 8.5 BUTTERFLIES AND SMILE VEGA 8.6 TRADER'S SUMMARY

CHAPTER 9: Black‐Scholes‐Merton Model

9.1 THE LOG‐NORMAL DIFFUSION MODEL 9.2 THE BSM PARTIAL DIFFERENTIAL EQUATION (PDE) 9.3 FEYNMAN‐KAC 9.4 RISK‐NEUTRAL PROBABILITIES 9.5 PROBABILITY OF EXCEEDING THE BREAKEVEN IN THE BSM MODEL 9.6 TRADER'S SUMMARY

CHAPTER 10: The Black‐Scholes Greeks

10.1 SPOT DELTA, DUAL DELTA, AND FORWARD DELTA 10.2 THETA 10.3 GAMMA 10.4 VEGA 10.5 VANNA 10.6 VOLGAMMA 10.7 TRADER'S SUMMARY

CHAPTER 11: Predictability and Mean Reversion

11.1 THE PAST AND THE FUTURE 11.2 EMPIRICAL ANALYSIS

APPENDIX A: Probability

A.1 PROBABILITY DENSITY FUNCTIONS (PDFS)

APPENDIX B: Calculus Glossary References Index End User License Agreement