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In This Chapter

Finding your way around the option markets

Leveraging your investment while managing risk

Valuing options with the Greeks

Looking at the past to gauge the future

Your trading career probably started with the stock market. Because there are plenty of similarities between stocks and options, comparing the two takes advantage of your base knowledge to expand firmly into a new trading environment, so we do that where possible in this book.

Covering options from a trader’s standpoint, this chapter provides information about the option exchanges you encounter, the different market participants impacting your transactions, and the market conditions that affect your trades. All these things have some influence on your trading success. The biggest key to success though, is really getting a handle on the factors that come into play when valuing options. With that in mind, we introduce formal option pricing components, known as the Greeks.

The U.S. Options Exchanges

There are six option exchanges in the United States, which is pretty amazing for a security that just started trading in the 1970s. Two of these were launched since 2000, and all six offer some form of electronic execution: