(From The Jacket) – Volatility, by definition, is indicative of underlying randomness. But there are patterns within the noise that can be measured and exploited. No one knows this better than author Euan Sinclair, a highly successful options trader with a doctorate in quantum chaos.
But the “Second Edition of Volality Trading” isn’t just about the numbers. Drawing upon his fifteen years as a professional trader, Sinclair provides a fully fleshed-out approach to trading that relies as much on the all-important “human element” and the psychological and emotional biases that drive trading decisions, as it does on quantitative analysis.
Ultimately, says Sinclair, trading is about having a coherent trading philosophy and developing a rigorous system. It’s about setting a goal that can be clearly expressed in one sentence, and about finding trades with a clear statistical edge. And, finally, it’s about capturing that edge and sizing each trade in a way that is consistent with your goal. Everything you do as a trader must be done within this framework.
Taking an accessible, straightforward approach, Sinclair provides you with the knowledge and tools you need to create just such a framework. He walks you through the basics of option pricing, volatility measurement, hedging, money management, and performance evaluation. And he develops a Black-Scholes-Merton-based quantitative model for measuring volatility that can easily be adapted to trading virtually any type of financial instrument.
Responding to major changes in the markets since the first edition, Sinclair has expanded his scope in this Second Edition to include coverage of the many new opportunities available in VIX futures, ETNs, and leveraged ETFs. He also:
- Analyzes the benefits and shortcomings of an array of historical volatility measurements
- Clearly shows how volatility behaves in the real world and how it relates to returns on underlying assets
- Outlines methods for forecasting volatility over the lifetime of a trade
- Supplies proven techniques for knowing when to hedge and by how much
- Delivers strategies for aggregating positions so as to reduce the need to hedge
- Shares priceless tips on how to boost returns through trade sizing — including techniques borrowed from the worlds of futures trading and professional gambling
- Arms you with powerful tools for evaluating the ongoing performance of your trading activity
- Fills you in on the latest research on cognitive and emotional biases that influence trading decisions and how to leverage them to your advantage
- Delineates time-tested strategies for trading VIX futures, ETNs, and leveraged ETFs
- Provides access to a companion website containing valuable spreadsheets, models for calculating volatility cones for different time periods, and simulation engines
Bringing volatility trading down to earth for even the most numbers-shy traders, as well as hard-nosed quants interested in acquiring a deeper understanding of options trading, “Volatility Trading, Second Edition” is an indispensable “tool of the trade.”