Customer Reviews

Option Market Making: Trading and Risk Analysis for the Financial and Commodity Option Markets (Wiley Finance)

5 star:		(5)
4 star:		(2)
3 star:		(0)
2 star:		(1)
1 star:		(2)

 

 

Not for the speculative trader. Baird explains neutrality and hedging scenarios in great detail. Explains some esoteric concepts rarely discussed, such as time spread risk and delta drift. Very succinct explanation on arb spreads and combos, and the tendency to trade to the pin at expiration. Highly recommended.

Baird's "Option Market Making" is the *other* essential options book that any serious practitioner should read. Whether you are buy-side or sell-side, or trading your own book, this work is fundamental and extends where Hull leaves off. In short, pricing models do not a bid-offer spread make, and Baird illuminates this dark world with the well-crafted sunshine of expertise, mathematical rigor, and experience. In addition, Baird's prose is clean, clear, readable and lean, without glossing over tough spots or ignoring extremes.

Baird's 1993 "Option Market Making" while a bit dated, is becoming recognized as an enduring classic. Not because it is up-to-date with the latest smile dynamics from the research of Avellenada or Rebenato, but because it does what it does very well. Like a classic cookbook such as The Joy of Cooking, this work tells you how to make perfect pot roast, but not the latest slow braised chipolte-rubbed hand-aged hanger steak.

Baird's "Option Market Making", indeed, is an economic anomaly, for it refutes an old chestnut: "those who can't do, teach." In the financial publishing world a book that makes or saves you money should not exist, since the expected return of taking the time and work for authorship is much lower than another economic activity (probably including flipping hamburgers). What motivated Baird? Who knows? But this is pure saved gold here.

Option neophytes should not be misled: this is not a book of "secrets of" that will lead you to quick easy riches in the sometimes wild swings of delta and gamma in options markets. Rather, this is a sober, careful, useful book on the actual difficulty of making a market under uncertainty and rapidly changing information sets. This is a work for practitioners and professionals who want to survive and thrive, not "*just*drive!*" Cowboys and "feelings" punters look elsewhere to scratch your itch.

Standout chapters include "Options Risk" which treats delta, gamma, lambda, theta, kappa/vega, rho, skew, and time spread risks in a clear, although direct and quick, manner. "Position Risk Profiles" covers the meat and potatoes of an options market maker: what is in your book at any one time. This chapter mercifully is not in a "panic mode" tone, but rather carefully and soberly guides you through essentials of risk determination for your entire book.

The chapter "On Strategy" will be helpful for punters and those who have committed some capital to being a market maker, covering delta neutrality (yawn!), but more importantly time spreading, expiration, Fences, and high volatility periods (yeah!). It also treats broker order flow and open interest analysis in a sober way ("saucer bottom" and "reverse hook" technical analysis copter beanies need not apply).

The chapter "Market Making Tactics" is perhaps the most aggressive, but it also patiently spells out what option market makers do on a daily basis. The entry on "common mistakes" alone is worth the price of this volume. Baird closes with a lighter "Observations from the Floor," which it behooves all to read nd revist upon occasion. Having worked in a pit myself, all I can say is "amen Brother, and again I say amen."

Although this book is not for beginners, it doesn't contain any formulas. Instead it focuses on all the complex aspects of making a market for options. I've read this book over and over again on a regular interval to remind me on the way market makers do their practice, and how to avoid the pitfalls in trading against specialists.

I highly recommend this book for a basic, clean, non-pretentious presentation of option trading from a market maker's point of view. Baird can also write English: very clear, linear, simple prose. The man has no axes to grind or ego trips to take, and he knows what he's talking about, and gives very practical advice.

Clear and to the point. Nice briefings on difficult subject. Especially useful because Baird let's you know about how to control your risk.

Anytime anyone is willing to credibly tell you what he does to make money over the long run with well defined low-risk strategies you should listen because casinos, banks, and insurance companies certainly do. The author implies a positive expectation to option trading and those who make a living doing it would agree. The book has a conversational read and has something for the novice to the successful option trader. Highlights are: Delta neutral trading, gamma scalping, the use of spreads to enter, lay off risk and adjust, and emphasizes long volatility trading. The title of the book has probably disuaded more traders from buying the book because it is equally benefical to those who are not option market makers.

It is one of the best books on option trading available in the market. It is really amazing how the author has been able to write the material so long back and it is still very relevant. It is not at all elementary level though. You should be very conversant with options before reading and appreciating this book in a true sense.

Just out of curiosity it may be worth skimming through its pages, but the way Mr Baird used to trade in the past (with sheets to get ur position from) is far away from how this is done today. Hence, do not surprise yourself if discussions such as smile delta and smile gamma do not come into play.

pretty outdated... the ratio of the added value of the book to the time spent to read it is far below than i expected..

10 or 20 pages of nice graphs worth copying and keeping on your desk, otherwise really generic, should be kept for reading in the subway