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The Option Trader's Hedge Fund: A Business Framework for Trading Equity and Index Options Hardcover – May 28, 2012

ISBN-13: 978-0132823401 ISBN-10: 0132823403 Edition: 1st

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The Option Trader's Hedge Fund: A Business Framework for Trading Equity and Index Options + Profiting with Iron Condor Options: Strategies from the Frontline for Trading in Up or Down Markets + Options as a Strategic Investment
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Product Details

  • Hardcover: 240 pages
  • Publisher: FT Press; 1 edition (May 28, 2012)
  • Language: English
  • ISBN-10: 0132823403
  • ISBN-13: 978-0132823401
  • Product Dimensions: 6.4 x 0.8 x 9.3 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (43 customer reviews)
  • Amazon Best Sellers Rank: #435,779 in Books (See Top 100 in Books)

Editorial Reviews

From the Back Cover

The Option Trader’s Hedge Fund provides traders with a resource that is not only actionable but interesting at the same time. They transform their extensive knowledge of option trading into an approachable means of educating investors of all types. It’s as if the reader gains new trading confidants in Mark and Dennis.”

--Tony Battista, Managing Director, tastytrade Financial Network


“In The Option Trader’s Hedge Fund, Mark Sebastian and Dennis Chen introduce traders to option trading methods that have been utilized by hedge funds for years. This book will help all levels of option traders take their game to the next level.”

--Russell Rhoads, CFA, Instructor, CBOE Options Institute


“Thousands of books have been written about stock and option trading. Unfortunately most of these books are completely focused on individual trade structures, and the ones that focus on risk management are completely weighted to the equity side. Until now, nobody has adequately addressed the issue of risk management for investors holding a portfolio of options. Without a solid approach to risk management, no serious trading effort can ever scale. Hedge funds know that because they invest hundreds of millions, sometimes billions of dollars. This new book by Dennis Chen and Mark Sebastian bridges that gap. It is destined to find a place on thousands of desks of private option traders who seek to scale their strategies and effectively manage risk because every serious investor knows that not losing money is the best way to generate a profit.”

--Jeff Augen, author of The Volatility Edge in Options Trading and Trading Options at Expiration


“From trade selection to execution, risk mitigation, and volatility analysis, everything you need to know is contained within these pages. Whether you are a newcomer to the options market or a seasoned options veteran, the insight and analysis contained in this book will provide you with the proper framework for your options trading.”

--Mark S. Longo, Founder of and The Options Insider Radio Network


Want to earn steady, reliable income from options? Then you need to run your options portfolio as a business. This book will show you how. Hedge fund manager Dennis Chen and top options coach Mark Sebastian introduce a complete, practical “insurance business” framework for trading options: a framework built on techniques proven in the world’s largest financial institutions.


Chen and Sebastian identify the option concepts most critical to long-term success and present core income strategies based on selling rather than purchasing options. Next, using real-world examples, they walk you through setting up your option business, offering a complete “operations manual” for addressing every day-to-day issue you’ll face. Drawing on their extensive experience, they teach crucial lessons about maintaining discipline, managing volatility and risk, handling infrastructure and payments, and much more.


To earn reliable income from options, you must be systematic, disciplined, and professional. As every expert trader knows, it’s a journey. This book will guide you every step of your way.


  • Trade options like “The One Man Insurance Company”
    Why the TOMIC model is uniquely well suited for individual option traders
  • Master the five essential components of high-profit option trades
    Choose better trades based on market selection, direction, timing, volatility, and pricing
  • Manage all your risks--including black swan risks
    Use all the risk management tools at your disposal, from position sizing to diversification and the use of “units”
  • Build and execute highly effective, efficient trading plans
    Run your option trading business with strong discipline and cost control

About the Author

DENNIS A. CHEN (Miami), Managing Director and Chief Investment Officer of Smart Income Partners, Ltd., a hedge fund specializing in option income strategies.  He has been investing and trading equities and options for many years and previously served as a management consultant focused on financial services at Bain & Company. He has experience in the banking, insurance, real estate, computer technology, Internet, publishing, advertising, construction, commodities, quick service restaurant, and automotive industries. Chen holds an MBA from The Wharton School of Business, an M.S. in Computer Science from Arizona State University, and a B.A. inComputer Science from the University of Texas.

MARK SEBASTIAN (Chicago), COO and Director of Education at Option Pit Mentoring and Consulting, is a former member of both the Chicago Board Options Exchange and the American Stock Exchange. Sebastian makes frequent appearances on CNBC, Bloomberg TV, and Fox Business channel as an expert on options, market volatility, and the S&P 500. He has been published nationally on Yahoo! Finance and quoted by The Wall Street Journal, Reuters, and Bloomberg. An All-Star Contributor for's Option Profits Team, he is also Managing Editor for Expiring Monthly: The Options Traders Journal.

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Customer Reviews

This is a book that every options trader should read.
Putting options trading into a business perspective and helping readers gain an understanding of how to manage the risk is the key.
There are so many gems scattered throughout the book you are well served reading it more than once.

Most Helpful Customer Reviews

30 of 31 people found the following review helpful By Jijnasu Forever VINE VOICE on July 8, 2012
Format: Hardcover Vine Customer Review of Free Product ( What's this? )
Apart from the very good comparison with the (re)insurance model (chances are an experienced trader implicitly follows this model) and a trading framework (more of an outline of the framework listing a collection of questions), an experienced reader/trader will be hard pressed to find any new information or insights for new trading strategies. Being a devoted reader of Jeff Augen, I was disappointed not to find any new valuable information, given his endorsement of the book.

For an beginner to intermediate level reader, the authors provide an excellent comparison to the insurance model and then provide a series of questions that can help create a trading plan. The experienced trader is not likely to benefit for the most part of the first 7 chapters. The authors provide a good summary of key strategies (nothing new) with a few insights on timing of the trades and good discussions on gamma scalping, impact of weekend, skews, etc. However, the details are sketchy and the complexity of the discussions very haphazard - intermediate readers will find the discussions of the more complex spread trades unnerving and will need additional references. An experienced trader will be able to use the last 3-4 chapters as good revision and may pick up an insight or two.

Despite the sometimes confusing approach to the topics (unsure of what audience to target the book to?), sketchy details, a rather poor citation/ recommended reading list, the last few chapters are likely to offer an experienced trader with few insights on mechanics of gamma scalping and related topics and provides an opportunity to reassess one's trading framework. 3.5*
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16 of 17 people found the following review helpful By Scott C. Locklin VINE VOICE on November 15, 2012
Format: Hardcover Vine Customer Review of Free Product ( What's this? )
I'm not an options trader, but I know something about the subject. Amazon Vine has sent me a couple such books for review in recent months. Other than Aaron Brown, I'm probably one of the few Vine Voice dudes who is capable of giving reviews for such things. There are other people to pay more attention to (for example; folks who trade options for a living, particularly the strategies he describes), but here's my best shot:

1) The strategies they describe here, are, to my knowledge, viable strategies. Vertical spreads, Iron Condors and Time spreads are well known, fairly low risk ways of making money. Many fancy pants looking strategies; high frequency, options, "mean reversion," stab art, trend following or "other" end up being one of these guys at the end of the day. I haven't backtested these strats on anything, but they are legitimate and well understood ideas.

2) The "general" advice given is sound. I don't know about hiring a trading coach; maybe it is a good idea. But treating the strategy as an insurance business is definitely the correct approach. Some of the detailed advice from Mark Sebastian (quoted from a blog, which is weird) seems like actual gems of wisdom. I'm not sure what most people would make of it though.

3) The book is pretty weak on a deeper understanding of options trading. There is nothing here to tell you about the greeks. There is really nothing to tell you about the different risk factors for the different kinds of strategies. I guess you need to go read Charles Cottle or Euan Sinclair's books first. This could be helpful for the hand wavey stuff afterwords, though I figure if you've read Sinclair's books, you probably don't need this book.

4) I detected some bad advice here.
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10 of 10 people found the following review helpful By Norman on June 15, 2012
Format: Hardcover Verified Purchase
I am not a professional options trader but learning. The concept of comparing options trading to an insurance company makes a lot of sense when you think about it. My main complaint is that the book often rushes through a topic without adequately explaining it. I kept getting the feeling that this book was just thrown together. Most of Part III is actually postings from Sebastian's blog. The book covers some topics such as unit options that are new and potentially very useful to me. Aso some of the blog postings are very useful. However, the book was originally listed as being over 300 pages long; it would have been better to me if the authors had kept writing with more examples.
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12 of 14 people found the following review helpful By Steve Burns TOP 1000 REVIEWERVINE VOICE on August 23, 2012
Format: Hardcover Vine Customer Review of Free Product ( What's this? )
This book explains to readers how to structure option plays for income generation for minimum risks by having hedges in place. Vertical spreads, iron condors, butterflies, calendar spreads, and ratio spreads are covered in this book and the authors show how to build these option strategies, at what point to take profits and when to cut your losses if the market does trend to where you are not profitable in a particular trade.

The book is written to explain the concept of the "one man insurance company" (I am not sure how female option traders will like that name). The concept is to collect premium from option buyers in exchange for the risk of losses in the underlying markets that the options were written on and earn profits from the time decay of the options that were written for the buyer. So the concept of the book is to be short option premium, to sell theta and vega in low probability situations and collect profits as the short options deteriorate in value as their expiration approaches. I was very surprised that the author recommended selling 60 day out options for maximum decay instead of front money options. He also explained that by Friday afternoon, weekend theta decay is already priced out of options so their is no arbitrage opportunity there.

The book is very informative on implied volatility and how to open option strategies with the highest probability of success. The author covers trade selection, risk management, trade executions. He also explains how to have a trading plan, trading infrastructure, and the importance of having a perpetual process for learning in place going forward.

This is a great addition to any option traders library.
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