Sheldon Tentenberg Biography
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The preface to the Russian publication, you hold in your hands the next publication of one of the most popular books on the most interesting and complex tools of the financial market - options. We can say that it was according to the work of Sheldon Tenenberg that many of the traders famous today learned to trade. The book will be useful to those who are just thinking about the trade in options and will help them master this interesting and flexible tool and make a profit using various trading strategies, as well as to effectively insure the risks of adverse prices.
The author did a lot of work: he gave in detail and accessiblely the definitions and descriptions of such important characteristics of options as volatility, the temporary cost of options, other key parameters of the delta, Vega, gamma, aunt, dismantled the simplest and advanced trade strategies. The uniqueness of this publication lies in the fact that the book is written in simple language and is not overloaded with mathematical formulas, which traditionally scare away those who want to try their hand at the option market.
The basic and advanced strategies for the trading of options are useful to both beginners and practicing traders in the urgent market. This publication will become one of the textbooks in training the basic course as part of the project “School of Options of the Moscow Exchange”. This educational project is aimed at training the basics of optional trade and attracting new participants to the derivatives of the Moscow Exchange Derivatives.
The project provides for free training of the best students of economic, mathematical and technical faculties of leading universities. The market of futures and options of the Moscow Exchange is the leading platform for the trade in derivative financial instruments in Russia and the countries of Eastern Europe. The urgent market combines developed infrastructure, reliability and guarantees of the central counterparty, as well as the most modern technologies for trade in futures and options, tested for more than ten years of stable and successful market development.
The line of instruments has 60 futures and 17 options, the basic assets of which are the RTS index, the MMEVB index, the RVI volatility index, industry indices, shares, federal loan bonds, foreign currency, interest rates and goods. She captured not only traditional participants in the financial market - speculators, hedges and arbitrators, but also individual traders “on the floor” of exchanges, among which the number of people who want to risk their own capital in the markets of these instruments.
However, not all newcomers in the options market will have success. For the training and accumulation of experience sufficient for survival and prosperity under any market conditions, months and even years are leaving. The vast majority of traders are not able to overcome the training period. The specifics of options, the nuances of their market, unforeseen risks work against an inexperienced trader and pushing him to failure.
Many problems, however, can be avoided if a novice trader is better prepared for a meeting with the realities of optional trade. Unfortunately, the existing literature on options either is theoretical and is designed for a scientific audience, or offers a simplified idea of optional trade as one of the methods of purchase and sale of securities or goods. Neither one nor the other meets the needs of a seriously -minded trader.
In the first case, not only the mathematical apparatus inaccessible to understanding, but also assumptions, often impracticable in real life are used. And in the second there is no completeness of information about various strategies that you need to know, and about the risks that are inherent in them. The purpose of this book is to fill out a gap in the traditional literature on options, uniting a theory with real practice.
It is primarily focused on serious traders. These include both employees of firms actively working in the options market and individuals who want to extract the maximum from the options offered by options. This does not mean at all that the book should not be read to those who do not have a direct relationship to the market or enters it only from time to time.
It never bothers to get acquainted with another point of view on a particular subject. But in order to understand the options, you need to make a lot of effort. Serious traders, whose income directly depends on the understanding of the specifics of optional trade, is much more willing to spend time and effort to achieve this purpose.To prepare the reader for work in the options market, I tried to combine an intuitive approach to the theory of options with the consideration of the practical problems that I have to face.
Of course, I did not set the task of keeping readers who have well -owned mathematical methods from a deeper study of the theory of price -pricing. But I want to emphasize that such a “scientific” approach is not at all required for success in the trade in options. In reality, the vast majority of successful optional traders have never read works on the mathematical representation of the theory of options, and they could hardly understand them.
My views inevitably reflect the experience that I have accumulated by working as an exchange trader. I do not go deep into complex hedging strategies, such as portfolio insurance and interflowing spreading operations. However, those approaches to the assessment of options that are good for the trader on the floor of the exchange are no less good for any other player, no matter what reasons led him to the options market.
In addition, I focus on the fact that professional traders are quickly absorbed, but often insistent market participants lose sight of: without careful accounting for risks and thorough knowledge of their management methods, today's profit can quickly turn into tomorrow's losses. Since not so long ago there are excavated options for futures contracts arousing growing interest, most examples in the book are associated with them.
However, the principles that allow us to succeed in the market of futures options are equally applicable to options for goods, shares and indices.
In addition, I used a number of other sources, primarily comments and criticisms of professional traders. In conclusion, I want to thank the employees of the PROBUS Publishing publishing house for their support and help, as well as for the patience that they showed while working with a novice author. Sheldon Tentenberg, Chicago Preface to the second edition in the city, after all, how much do we, in the end, have professional optional traders?
Fortunately, when the book was published, it turned out that it was actively bought not only by specialists, but also by non -specialists. The processed publication is addressed to the same audience. It will interest primarily serious optional traders. Despite his usefulness for non -professionals, professionals will be more likely to work with him, whose income directly depends on knowledge of the theory and practice of optional trade.
In the new edition, I tried to take into account the proposals and remarks of traders regarding the first edition. In the first edition, the emphasis was on commodity options. The reason is purely marketing. At that time, there were already several books on stock options on sale, but not a single one for commodity options. These markets have acquired such a meaning and are so interconnected that they should be considered in any work on options.
Many complex strategies provide for the occupation of opposite positions in the options on different basic assets. Most often they ask me why options with different execution prices are traded with various market volatility ImpLied Volatiles. In the new edition, I presented an analysis of this phenomenon and methods with which traders solve the problem. New programs appear so quickly that I considered it inappropriate to bring in the book a list of suppliers and software products, as was done in the first edition.
In addition, I am far from all existing programs and I can quite miss some good product. When the first edition was prepared, I cited a number of schedules for historical volatility according to some futures contracts from fears that novice traders will not find volatility data. However, now such data are available in one form or another to almost all optional traders, therefore, in my opinion, there is no need for such an application, especially since the graphs are quickly obsolete.
As before, I do not consider myself a theoretician and are not going to position this book as an exhaustive guide to the theory of options. The theory here is only a necessary element of successful practical activities in the options market. I tried to present all theoretical calculations given in this book without the use of a special mathematical apparatus. The reader will find a more complete presentation of the theory of pricing of options in any of those excellent books that are listed in the F.
Appendix and I am not going to make decisions for the reader or tell him how he should trade. You can achieve success in the options market in different ways. But no matter what style the trader adheres to, without thorough knowledge of the tools and the ability to use successful activity is simply impossible. I set the task to explain what kind of tools this is, how it works and how it can be used to make decisions taking into account the needs of the trader and its trade style, and tried not to impose its own preferences and not to convey my prejudices.
In a certain sense, neither this nor in the first edition has nothing new. Everything that says about the theory of options, trade strategies and risk management is already familiar to experienced traders in one form or another. I set the task of collecting all the material together and present it in an ordered and easy to perceive form in order to give the novice trader the foundation for building a successful career.
This book is a fruit of not only my efforts, it also has a share of the labor of numerous traders who gave comments and suggestions. Without them, I would not have been able to achieve the completeness of the coverage of the most important aspects of optional trade. I sincerely thank them, as well as the editors of Probus Publing Company, whose patience was limitless. Sheldon Tentenberg, June G.
The terminology of the optional market, each trader or investor operating on the market or investor. Someone enters this market, wanting to play on a possible movement of prices. Someone wants to use options to protect open positions from an unfavorable change in prices. Someone hopes to earn on the price difference of the same or related financial instruments. And someone acts as an intermediary, buying and selling in response to the applications of other market participants and earning on the difference in demand prices.
However, the training of any trader, whatever his goal and expectation, should begin with acquaintance with the terminology of optional trade, as well as with the rules and norms regulating this activity. Without knowing the language of options, the trader will not be able to report his intention to buy or sell anything in this market. Without a clear understanding of the terms of the optional contract, as well as his rights and obligations under this contract, the trader will not be able to extract maximum benefits from the options and evaluate very significant risks of options trading.
Characteristics of optional contracts options are two types. Coll option is the right to buy or take a long position in this asset usually in certain securities, product, index or futures contract at a fixed price on a pre -set day or until this date. Option Put - the right to sell or take a short position in this asset. Pay attention to the difference between optional and futures contracts.
A futures contract requires a fixed price. The buyer and the seller of a futures contract have the obligation to fulfill. The seller is obliged to supply, and the buyer - to pay and accept the assigned asset. In the case of an option, the buyer has a choice. He can execute the option and accept the asset of the Call or the supply of Put, but also has the right to refuse to execute the option.
If the buyer of the option decides to accept the asset supplied or delivered, then the option seller is obliged to act as the opposite side. In option trading, all rights are on the side of the buyer, and all obligations on the seller’s side. The asset to be purchased or selling under the terms of the contract is called the basic one. The price of execution, or the price of a strik, is the price at which the basic asset is delivered if the option holder decides to exercise his right to buy or sell.
The date, after which the execution of the option is no longer possible, is called the date of expiration of the option or the expiration date.