Читать книгу How to Price and Trade Options - Sherbin Al - Страница 5

Options are one of the most powerful money making asset classes ever devised. Yet they were not devised as a money making tool. Rather, their “purpose for being” is to limit portfolio risk. Whether you are talking about a portfolio of one stock, a hundred stocks, stocks mixed with commodities, or a myriad of other combinations, options can be used to either enhance your portfolio’s return on capital, take advantage of leverage to enhance yield, or limit your risk by exchanging a bit of profit potential for the “insurance” a long option provides. But if you are looking to buy an option to limit your risk, someone has to be on the other side of the trade. In years past, the other side of the trade was usually taken by professional options traders. The professional options trader was a mythical creature who made thousands of dollars every day by “picking the pocket” of the poor individual investor. I want to emphasize the word mythical. The professional options trader was merely someone who understood that options trading is nothing more than an exercise in simple probability theory. And this probability theory is easy enough to learn; with a bit of time and effort, most people can master it and use it for their own benefit. Furthermore, today options markets are, for the most part, so efficient that you can trade either side of a narrowly quoted market. Thus, there is no one out there picking anyone’s pockets. Options provide the fairest, most level playing field one can hope for.

When most investors hear the words options trading, they think “too much risk,” they think “calculus … too complex,” they think “too time-consuming,” and they think “the professionals will clean my clock.” However, none of these thoughts are accurate. I am not purporting that options trading is easy and that anyone can do it. In fact, I am purporting only half of that statement! If you are a motivated learner, trading options is not that difficult to learn. Though it is not easy, virtually anyone can learn to trade options with a little effort. Let’s illustrate my point by addressing each of the foregoing excuses individually.

If options trading has a bad rap, it got it as a result of the Crash of 1987. In fact, that single event has, to date, changed the way people price options. (More on that in a later chapter.) During the crash, there were stories of traders losing everything as a result of being short “naked puts.” Does that mean there is truth to the statement that options are too risky? Let me answer that question with a question. Most people are comfortable owning stocks. Which trade carries more risk, owning 100 shares of XYZ stock or being short an XYZ put (which commands 100 shares of stock)? Would you be surprised to know that owning stock is actually riskier? And would you be surprised to know that you have better odds of making money being short an out of the money put than being long stock? The difference in the odds can be considerable and quite surprising to many.

Maybe you have done your homework and have discovered that option pricing models are generally based on either some form of the Black-Scholes model, which is a partial differential equation, or the binomial model, which is a decision tree–style model. Your eyes have glazed over already! Calculus! Complex math! Time to find another book to read? Well, hold on a minute. As a retail options trader, you have no need to understand the calculus behind the models. In fact, your (carefully chosen) broker should provide you with all the calculus-induced models you need to trade effectively and profitably! And some do so at no charge to you! Before you think, “No math? Awesome,” I need to burst your bubble. I did not claim there would be no math. I said there would be no complex math. For you to be effective at options trading, instead of the calculus behind the pricing models, you need to understand the odds, or probability theory, behind options. You do not need to become a statistician. You merely need to understand a few basics, which I will address in this book. In fact, it is the probability basis of options that makes trading so much fun (and profitable) for me. I am, and have always been, enamored of games. Games can keep me interested for many hours, days, weeks, and months on end. And when they put money in my pocket, all the better!

You may be thinking, “I do not have a lot of time to devote to this.” While it will take some time and effort to learn to trade options effectively, once you get the hang of it you can trade by devoting 10 minutes per day to it. As I write this book, I am teaching individuals and groups how to trade, I am teaching college finance classes, I am commentating on TV every week, I am speaking at conferences, I am preparing research, I am attempting to be a good father and husband, and, yes, I am trading around 10 minutes per day. My return on capital year-to-date far exceeds the market’s return, which is in turn having a nice year! In fact, my trading has been profitable for each and every one of the 26 years I have traded. I am certainly no trading savant. I have just learned how to effectively take advantage of the probabilities that options provide any investor. We will explore this in detail.

Is it worth the trouble to learn to trade options? Well, that is a personal decision. While there are some people who I believe should stay away from the options markets, they are few and far between. If you like games of chance (in which you have the odds in your favor) and you like to earn money, you might want to put a bit of time into learning to trade options. I believe you will find it fun and rewarding! But be prepared. In my experience, you cannot take the training wheels off until you have been trading for around 18 months, on average. Of course, some people catch on much quicker, and I have coached traders who had never made a trade before to be consistently profitable after only three months of effort. And I recall one person in that group who was simultaneously working 60 hours per week at their systems development job.

As for the fear that the professionals will “clean your clock,” know that options trading is a much less personal experience. It is not “us against them.” I find that retail traders often make money because of the professionals, and not despite the professionals. We talk more about that later.

With all this being said, there are a plethora of books written on the mathematics of options. And there are many people who trade options full-time who are struggling to make money. In this book, I will subscribe to the K.I.S.S. (keep it simple…) method and stick to only the things you must know to trade effectively and profitably. I hope you will stay with me as we explore the world of options.