Customer Reviews

Option Volatility & Pricing: Advanced Trading Strategies and Techniques

5 star:		(53)
4 star:		(5)
3 star:		(3)
2 star:		(6)
1 star:		(5)

 

 

I have been a professional options trader for over 11 years. In my experience most options traders fail, and for two reasons: naive faith in mathematical models and software, and a basic misunderstanding of the concept of impled volatility.

This is the one book that everyone who has worked for me has been required to read: it is ESSENTIAL. There is no other book that covers these topics in the the way that market practitioners think about them, nor does Natenberg forget to include anything that's really useful.

I have to agreed with another reviewer: understand and study this book! Options trading is a zero-sum game. Professional traders have the edge and been earning a good living from the ill-prepared, arrogant, and naive for years.

If you trade options, you will quickly learn that it is essential to understand the concept of volatility. Natenberg explains the concept of volatility in great detail, and shows how this concept applies to different option positions.

Natenberg not only takes great pains to explain the concept of volatility, in addition to other inputs into an option pricing model, but clearly shows that option pricing isn't the exact science many seem to believe, for the simple reason that we never know if our volatility estimate is correct. I suspect many traders just don't understand the severe limitations current models have in different situations (ie. how the Black-Scholes model underprices options near expiration).

For the mathematically inclined, there are ample formulas and equations in the appendix.

Read it, study it, and apply the concepts to develop your own trading system.

Perhaps the most amazing success story in the markets and investing in the last 10 or 15 years is the growth of the options market, and the advent of inexpensive trading for derivatives such as options, allowing even the small and amateur investor to use these vehicles if he or she wants. I've read that the options market has grown more than ten-fold since the 80s, even more so than the stock market. This book will help you advance your knowledge of this important area of the market.

This is one of the few really high-level options books that is understandable without advanced math. I have a couple of other books on options and derivatives, and they require advanced calculus. It's still geared toward the professional, but as an amateur I still found it interesting and worthwhile reading. Be advised you'll probably still need to read an introductory book or two on options before tackling this volume, which is what I did. But after absorbing those two books, I found I had the background to read and appreciate Natenberg's book. Natenberg discusses all the advanced concepts so you learn such things as how to do butterfly option spreads, synthetic puts and calls, volatility spreads, how to remain delta and gamma neutral, and other such advanced concepts. Overall a great book and essential reading for anyone who wants a better understanding of this important area.

I hesitated writing a review for this book because I didn't want people to be drawn to it and therefore increase their understanding of options trading. However it looks like alot of other people already have written there review so I'll add my two cents worth.

The first time I read this book I didnt understand it and therefore I didnt like it. Fast forward a few years later with a wider understanding of options trading - I read the book again and was blown away by it. This is the best book written on options trading I have ever read. It explains more than just options strategies or the definition of different popular pricing models, it explains the basis of what goes into developing a theoritical option pricing model. It shows you the logic behind what every credible option pricing model attempts to do. I know now why I've been losing money. I've never read any other book that explains option pricing as simple and clearly as this book does and believe me, I've read alot of books. Other books I have read on option pricing are either too simplistic that many questions still linger or so complex that only someone with a heavy math background could understand it. Natenbergs book is just perfect. As I've implied earlier, you need to already have a solid knowledge of options terminology and mechanics but given that you have that, this book will take you to the next level. My hope is that most people would be too intimidated to read this book or a book like this so they never reach that next level. (Sounds mean, I know. Sorry!!!)

Most of all I like books that give me new ideas and make me think. This book does just that. I've never been the type to just trust in software or blind calculations. I've always been the type to person needing to know what goes on under the hood. Because Natenberg discusses the mechanics of pricing an option in a clear and understandable way, and because probability and volatility calculators today are cheap and even free, I have been emboldend to experiment with different pricing ideas for both options and its underlying.

With the popularity rise in options and option strategies, I must admit this is a great book to get started with. I am a clerk at the CBOE and have studied this book thoroughly, and in my experience it's the best options tutorial out there. I have also sampled the John Hull book and the official Options Institute book. The writing is very readable and it does not bog you down with overly complex derivations of each formula (there is an appendix that does derive and explain the details of the Black and Scholes model though.)

If you're serious about trading I highly recommend reading this book first - it'll be a useful tool. Working at CBOE I have seen many other clerks studying their Natenberg books during the slower times. Learning arb (hand signaling) and understanding what you are arbing are the keys for a successful options trader. This can be useful for someone just getting started in options as well or with prior experience.

As a floor clerk for a professional options trading group, I beleive this book gives an excellent non-techincal overview of options trading.
Before you buy this book you should know;
The book is geared toward professionals and floor traders, but that doesn't mean that a non-professional wouldn't learn a ton about option trading (things that one could apply to trading from off the floor).
The book is not very technical. If you are looking for a technical book, buy "Options, Futures, and Other Derivatives" by John C. Hull.

There is a reason why almost all of the reviews of this book are in the Excellent range. It simply is a must read for anyone who wants to be serious about trading options and making intelligent trades. While the book is designed for those on the technical side of trading, it is also a gold mine for those of us simply trading options to make money! Natenberg explains concepts that are essential for the layman to be aware of in order to understand the market. The book is well worth the price just for his discussion of the normal distribution and of how it relates to volatility and investing in options. College statistics teachers could learn how to present this important concept in a meaningful way just by reading this chapter! It is easy to take the information from this book and use Excel to write a program to figure the expected price swings for any stock option based upon its volatiltiy. While the average options trader will not need to master much of the detail in the book, the simple awareness presented here will make you a better and more confident trader. By combining the ideas from this book with those from Max Ansbacher's The New Options Market, you can be in a powerful position to deal effectively in the options market.

I read this book after reading other more basic stuff an I really have to say that it took me to the next level. After reading this book I was able to do alot of the advanced strategies without a problem. Of course I read more advanced books then this to help me apply this stuff.
Dont listen to these idiots reviews who say there is software out there that can do all the work for you. You need to know why the software does what it does and this book will explain it. The best software in the world cannot help the losing trader.

The reason to read this book is because of it's extremely well written and useful explanation of the way volatility affects options pricing, and also by far the best description of the "Greeks".

I had already read Guy Cohen's 2 books on options. I think Guy's explanation of the actual option strategies was better. But was weak on the explanation of volatility compared with this book.

This book isn't for novice option traders, but a must read if you're intermediate level options trader. I learned a lot from this book, and it's changed the way I trade. I now look for undervalued options to buy, and overvalued options to sell. This book describes how to determine if an option is over or under valued.

This book is a must read for professional option floor traders and clerks at CBOE. If your interest lies in how options are actually priced and want information on the effect of volatility
on options pricing , it is the book to read.
If you are an individual investor trying to use simple option strategies to enhance your stock profits and recover your losses , this book will be too detailed and theoretical. In this case I would recommend Generate Thousands in Cash on your Stocks Before Buying or Selling Them: Third Edition edition ,where the author focuses more on practical simple strategies to recover losses and enhance stock profits using options combined with timing techniques to trade stocks. AlsoOptions Made Easy: Your Guide to Profitable Trading (2nd Edition) where you can get a simpler introduction to option theory.