Volatility Trading

In Volatility Trading, Sinclair offers you a quantitative
model for measuring volatility in order to gain an edge in your
everyday option trading endeavors. With an accessible,
straightforward approach. He guides traders through the basics of
option pricing, volatility measurement, hedging, money management,
and trade evaluation. In addition, Sinclair explains the
often-overlooked psychological aspects of trading, revealing both
how behavioral psychology can create market conditions traders can
take advantage of-and how it can lead them astray. Psychological
biases, he asserts, are probably the drivers behind most sources of
edge available to a volatility trader.

Your goal, Sinclair explains, must be clearly defined and easily
expressed-if you cannot explain it in one sentence, you probably
aren't completely clear about what it is. The same applies to your
statistical edge. If you do not know exactly what your edge is, you
shouldn't trade. He shows how, in addition to the numerical
evaluation of a potential trade, you should be able to identify and
evaluate the reason why implied volatility is priced where it is,
that is, why an edge exists. This means it is also necessary to be
on top of recent news stories, sector trends, and behavioral
psychology. Finally, Sinclair underscores why trades need to be
sized correctly, which means that each trade is evaluated according
to its projected return and risk in the overall context of your
goals.

As the author concludes, while we also need to pay attention to
seemingly mundane things like having good execution software, a
comfortable office, and getting enough sleep, it is knowledge that
is the ultimate source of edge. So, all else being equal, the
trader with the greater knowledge will be the more successful. This
book, and its companion CD-ROM, will provide that knowledge. The
CD-ROM includes spreadsheets designed to help you forecast
volatility and evaluate trades together with simulation engines.