Chekulaev options. Mikhail Chekulaev - Riddles and secrets of option trading

The purpose of this book is to tell as much as possible about options trading. Moreover, in this edition, unlike many other similar ones, all examples and illustrations are taken from real life and from real trading in international financial markets.

By and large, the book "Mysteries and secrets of option trading" is a kind of guide to the world of options. It is worth noting that it is very difficult to study such material, even though the book is written in an accessible and simple language. The fact is that information regarding their functioning and use in trade is simply impossible to present consistently. Readers will have to reconcile themselves and not try to find answers to all questions at once. A little patience and when you finish the whole course, you will be perfectly versed in options trading.

The content of the book by Mikhail Chekulaev "Mysteries and secrets of option trading"

1. General information

2. Introduction to Options

3. What depends on the executing broker

4. Options as speculation and hedging tools

5. Options in the commodity markets and in the securities markets

6. Mathematics of options

7. Software tools and analysis

8. Position Analysis: Philosophy, Principles and Specific Features

9. Specific option contracts

10. General principles for the formation of option strategies and their management

11. Buying a call option

12. Buying a Put option

13. Buying options at odds

14. Managing long options

15. Selling Call Options

16. Selling Put Options

17. Writing a Covered Put Option

18. Selling at odds

19. Managing Short Option Positions

20. Simultaneous purchase of Call and Put options

21. Selling Call and Put Options Simultaneously

22. Synthetic short and long positions

23. Spreads

24. Other option strategies

25. Overview of standard strategies and management

26. Complex optional designs

27. Special products

28. Buying and Selling Volatility

29. General questions

Let's move on to the practical side of the issue. Namely, what the owner of these puts got or lost. Such operations, as a rule, are carried out in order to obtain a neutral position in the market, which is then managed according to the delta-neutral hedge (rebalancing) algorithm.
No other way. Just money thrown to the wind, or an unshakable faith in one's own insight.
This statement is not taken out of thin air. It’s just that at one time I had to calculate algorithm options for such positions several times a day, of which, in total, probably hundreds (maybe thousands?) “passed through hands”. I remember that the most intense work was that year when the twin towers rammed (or blew up?) I even had to write a program suitable for the occasion in Excel (on macros), because at that time the necessary software was simply not ready for use. Well, except that CQG gave something in graphical form.

But this is a lyric. And now to business.
So, judging by the data of the Moscow Exchange, on September 18 and 19, 2013, some legal entities bought 292.639 Dec-135-Put options in a couple of days. For calculations, I assumed that the desired Putoman took 280 thousand contracts. Surely, after all, someone on the increased volatility also decided to take part in the Sabbat on trifles? I didn’t go into much on what the purchase was for (too lazy). I just assumed that the average option price was 3500 pips with a RIZ3 price tag of 147000.
In fact, as we will see below, possible errors in the assumptions do not play a special role here, since the tasks and goals were larger in comparison with what turned out as a result.
Having entered the data into my ancient program (I used it, because everything is transparent and verifiable in it), I got the following: 280 thousand Dec-135-puts had an exposure (cumulative delta) minus 70 thousand at the time of their purchase (the equivalent of FRTS). In order to nullify the delta (and at the same time maximize the gamma, which is always included as a free gift for delta neutrals), it was necessary to have 70 thousand long RIZ3s, or their equivalent on the spot (stock portfolio closely correlated with the RTS index).

This is how my ancient software looks like (fragments of tables, calculated and for entering initial data):

And this is the profitability (risk) profile of this position, built by the same program:

I was a little curious, trying to find out the question, and at what price did this long synthetic straddle have a breakeven risk profile at the point of its creation? It turned out, a little below 121 frts....
Now it is necessary to find out from what assumptions this position was formed. In fact, this is done "before", but since there is an investigation here, we have to go "in the reverse order."
I will say right away that the general meaning of all such constructions comes from the assumption that the market will make a good oscillatory (non-directional) movement from the entry point to the position. It is assumed that during the period of holding the position, the options will be both in gain (in the money) and in loss (out of the money).
By the way, if in this particular case the options worked in conjunction with a portfolio of purchased shares, then the purchase of options was due to the expectations of a market decline “in the near future” with a subsequent return to the entry point into the position. Why? Yes, because the formation of such a position made it possible to painlessly increase the volume of the portfolio by four times without much risk in the segment until the expiration of the options.
Then, apparently, it was assumed that the “strong buy” phase would begin with a horizon of at least 10 months (counting from the second half of December 2013).
Based on this future growth, it was planned to gain the necessary position in the papers. But we wanted to do this with minimal risk - in any case, without allowing a significant dip in the portfolio's current yield, albeit over a relatively short period of time.
This hedging scheme (using the concept of delta-neutrality with rebalancing) is known but rarely used. The problem is due to the significant resources required for its implementation in comparison with other options. In addition, this scheme generates significant uncertainty in the cost-benefit perspective, so its application requires a strong confidence that expectations will be translated into reality.
Offhand, we have the following: Putoman is sure of a good move down, followed by a return to the entry point, or a little lower, between 135 and 145. The answer to the question of how deep the move was supposed to be lies in plain sight. At a minimum, twice the distance between the position creation point and the purchased options. That is - the figures are 25-30 lower than 145, - somewhere to 115-120 fRTS.
Apparently, Putoman had good reasons to think that this would happen in 3 months. That is why a position of long volatility was created with the assumptions that the RTS index will have approximately the following trajectory:

Buyer Trade Idea Dec-135-Put:

There is not much to discuss here. Because if everything is different, then in this case we are dealing with a typical case of a mental disorder, where schizophrenia is the least of the evils.

For those who doubt, I recommend materiel:
The theory of trading volatility (delta neutrality) is to Kevin Connolly "Buying and Selling Volatility" . There were two editions in Russian with an interval of about 10 years, of which the first one is the closest to the original (there is one on the Web).
Practice on this issue is M.V.Chekulaev "Risk management: Financial risk management based on volatility analysis" . Available (free) 100% on GoogleBook and can also be found online.

The result is known to all.
The puts were not included in the money, thus not providing their owner with the opportunity to take their own on the rebalancing of the position below the strike price of the options.
The question arises - could rebalancing the portfolio according to the delta-neutral scheme help replenish the costs of buying options?

The results of calculating the exposure of options in graphical form (more clearly):

I'll tell you right away. I didn't bother too much with calculating the "exact" option volatility. I just figured it out approximately according to the price tags that were on the stock exchange for this particular RIZ3 at a certain point in time. The only assumption was that Putoman, most likely, did not take into account fluctuations in volatility when calculating the exposure, while the fRTS was above 135. In fact, in the context of days, IV almost did not fluctuate.

I made three options. The results of each are as follows.

Option 1 . It assumes that Putoman has rehedged at all price extremes (according to the figure above), rebalancing according to the concept of delta neutrality:

Option 2 . Here, Putoman broke the FRTS at the peaks and bought at the lows in volume that provided zero exposure. The exception was the 12/5/13 low, where no buying was made as Putoman expected a sharp drop in the next 7 trading days (until 12/16/13):

Option 3 . In fact, it is a variation of Option 2, in which Putoman came to the conclusion that there would be no fall, so he leveled the exposure on December 5, 2013 to zero (purchasing 120 thousand contracts), holding them up to expiration:

As you all understand, the assumptions are somewhat idyllic. As it was in reality, it is definitely impossible to say.
Due to all the circumstances, I personally initially (and still) believed (and still believe) that Putoman is a non-resident who acted through a Russian bank (possibly the same VTB), using it as his counterparty. Well, he, without thinking twice, jumped out of the deal, having found other, more risky guys who were ready to sell an epic option position for our market. The non-resident is one of the cohort of major players in the world markets that have recently entered our market after joining the Euroclear system. As a matter of fact, thanks to their arrival, the French RF in September grew more than what it was objectively capable of for a period of time.
At the same time, the main idea of Putoman was to increase the portfolio accumulated in late summer and early autumn, working according to the delta-neutral hedge scheme. Please pay attention to this fact, because we are not talking about short-term speculation, but about taking a medium-term position with the intention of holding it for up to a year or more. Therefore, it is both premature and reckless to draw conclusions about what de Putoman was "inserted" and "we will still insert" - both prematurely and recklessly.

It remains to draw one more important point. Among the whole spectrum of assumptions about the megaposition in December-135-put (2013), there are also those that this is “laundering”, “profit diversion” and the like. It is pointless to argue on this topic - there are arguments both "for" and "against".
But in fact, something else is more important - the fact that these suspicions were born at all speaks of the extreme inferiority of the Russian derivatives and stock markets. So much so that it is more correct to talk about the inconsistency of its structure (structure, honesty and transparency) with the requirements of the current moment. At the same time, it would be more accurate to call the development of these markets degradation, that is, evolution with the opposite sign, leading us in the wrong direction (from the point of view of society, of course). Archaic, in a word....

To be continued…
From it you will learn (including) why the qualifications of Putoman's staff are low, and why you should not do the same thing that Putoman does, and if you do, then when and where...

In conclusion, a selection of the most useful materials and resources that those who are interested in options will need:

Hull"Options, Futures and Other Derivatives" Available 100% on Google Book
The fundamental reference book from a recognized authority on derivatives.

MacMillan"Options as a strategic investment"
Lots of water, but quite informative, accessible for beginners. It would be more correct to call "options as an investment strategy." Meets on the web.

MacMillan"Macmillan on Options"
There is even more water than in the previous one. But some still manage to get something useful out of it.

M.V.Chekulaev"Risk Management: Financial Risk Management Based on Volatility Analysis" Available 100% on Google Book
It would be more correct to call this book as “Practical Issues in Trading Volatility: Delta-Neutral Strategies with Dynamic Rebalancing”

Kevin Connolly"Buying and Selling Volatility"
The theory of trading volatility (in the sense of delta neutrality).

Mikhail Chekulaev"Mysteries and secrets of option trading" Available 100% on Google Book
All about options. Nothing inferior to MacMillan, while better structured and more intelligible.

S.A. Silantiev"The Logic of Option Trading".
Well structured study guide.

Sheldon Natenberg“Options. Volatility and valuation. Strategies and methods of option trading»
I will not say anything - neither good nor bad. Main reason: the quality of translation and editing is unknown. In passing, I note that if readers knew how many errors and inaccuracies there are in translated publications (modern period), they would never read books in translation, especially business literature.

Nassim Taleb Dynamic Hedging. Managing Vanilla and Exotic Options»
Only in English, almost 500 pages. It is interesting mainly for those who want to deeply understand the rehedge of option portfolios.

M.V.Chekulaev“Financial options. Handbook-guide»
There are no stores. Selling by mail only, here, or
Simple, short and clear about everything related to option trading at the current time. The most relevant (in the sense of fresh). It is recommended to have it always, as they say, “at hand”.

6.12.2016

First of all, I would like to draw your attention to the scope of the Financial Options book. It's only 140 pages. Those. this is not even a book, but (as the author himself called it) a guidebook.

But in fact, the small volume of the reference book is not a minus, but a huge plus.

Firstly, the guide allows you to not only learn about options in just a couple of days, but also get acquainted with the most popular option strategies.

Secondly, even despite the fact that the directory is small, the information in it is concentrated as much as possible. Minimum "water" and the maximum amount of useful content.

I am sure that I will have to return to the book more than once, because. I made some notes on almost every page. As the author himself recommends, you will need to return to the reference book until the ability to independently build option trading strategies grows to a sufficiently high level.

Despite all the pluses, for simplicity, I cannot rate it higher than 2 out of 5. And the point here, most likely, is not even that this particular book is difficult. The very topic of options is extremely difficult. This, as they say, is the aerobatics of trading. Most likely, all books of this kind will have a low rating.

In principle, if you already know how to predict the price movement and understand what phase the market is in, then you can simply read the information in the book, understand the logic of the options, and in the coming days, as a test, assemble a certain option construction (combination of options). Those. practical use - 5.

But for the depth (detailing, nuances, facts, general conclusions) - score 4, because. there are very few practical examples, and, first of all, very little information on how to manage a position if something goes wrong.

In general, the book is not very motivating. I would say, more frightening, because. at the end of each chapter, there is always a talk about the cons and dangers that lie in wait for a trader using one or another trading strategy. Because of this, I gave a rating of 3 for brightness / motivation. If it were not for the fact that options are, after all, flexible tools that make it possible to use them in completely different market conditions, then the rating would be even lower.

The book was written with the support of SaxoBank, so there is often open advertising of this bank, which, of course, is a little annoying. In addition, the book contains a lot of information about specific options that are not represented on our market, and if they are, it is almost impossible to trade them due to low liquidity. Accordingly, a trader who wants to trade on the Moscow Exchange will simply not need a part of the book.

In this regard, I will most likely create a section on the site that will be devoted purely to options. In this section, I will throw both theoretical information and a description of various optional designs, each of which can be adopted and independently tested in practice.

INTERESTING MOMENTS

- option - in the general sense of this term, it implies the conclusion of an agreement that provides for the possibility of making a deal in the future with some specific asset on known conditions

- standard options (options with unified terms) are called simple or vanilla options

- the right arises only for the option buyer, who is free to make a decision within the terms of the option contract; on the contrary, the seller of the option always assumes the obligation to deliver or sell the underlying asset (base)

- historically, the cost of an option, or its price, is called a premium; at present, the terms premium, price, cost are considered equivalent in their internal meaning

— all options are divided into 2 types: put and call; call - a buyer's option, gives the owner the right to buy a certain asset at a predetermined price and at a specified point in time; A put is a put option that provides the holder with the right to sell a certain asset at a predetermined price and at a specified point in time.

— the most common options on the Moscow Exchange are American-style options, i.e. options that can be exercised at any time before the expiration date of the option contract

— exercise price (strike, strike price) is the price at which the underlying asset is bought or sold when the option is exercised

- an option in the money (in-the-money) is an option with a win; if you take a call option, it will be in-the-money if the strike price is below the current price of the underlying asset; if you take a put option, it will be in-the-money if the strike price is above the current price of the underlying asset

- out-of-the-money options - these are options with a loss; if you take a call option, it will be out-of-the-money if the strike is above the current price of the underlying asset; if you take a put option, it will be out of the money if the strike is below the current price of the underlying asset

— y-money options — this definition includes options whose strike prices are equal to or very close to the current price of the underlying instrument

- in a certain sense, long calls (bought) are equivalent to short puts (sold); and vice versa

option buyers assume limited risk (risk is known in advance), and sellers are forced to take unlimited liability (risk is not known in advance)

- long options open up an opportunity to make a profit only in a trend; calls create income when the market rises, and puts create income when it declines

- at the same time, short options also make a profit in the absence of a clearly defined trend; thus, short calls are profitable in the case of “no growth” and even in the case of a weak growth; and short puts bring good luck in the situation of "not falling" of the market, as well as in situations of weak or slow descent down

— the rules for trading options differ little from the rules for other financial derivatives

- a certain series of option contracts is opened for trading at the appointed time; market participants begin to conclude deals on them; before the stipulated date, when the options expire, they are traded in the same way as any other financial instruments; investors can open and close option positions as many times as they want

- at the time of expiration of the options, they are reset to zero, that is, their value becomes equal to zero; at the same time, out-of-the-money options become an irretrievably lost investment, and in-the-money contracts are either converted into a position in the underlying asset (if, for example, we trade monthly options, then a position in futures will be opened), or automatically closed (if, for example, we trade quarterly options , then the futures collapse)

— each option has a unique alphanumeric code; it makes no sense to memorize the encoding to the smallest detail; in some trading programs, the required option can be entered into the terminal using the search option by the symbol of the underlying instrument, maturity month, type and strike

— you can open/close positions on options using methods that are used when trading more classic instruments (stocks and futures): using market or limit orders

— the cost of options is affected by 5 parameters: the price of the underlying asset, the risk-free rate, the strike price (strike), time to expiration and volatility; at the same time, only one parameter out of 5 is extremely difficult to calculate - volatility

— a huge number of option strategies have been built on the use of volatility dynamics as a cost growth driver; There are many methods for assessing volatility, but none of them is perfect.

— as a rule, the shorter the time to expiration and the further the strike is from the current base market (especially relevant for contracts with a life of less than 3 months), the higher the volatility

- uneven change in the value of options is described by sensitivity indicators - the so-called "Greeks" (due to the fact that they are denoted by Greek letters); those. the Greeks show what effect a specific factor has on the price of an option contract, while other price drivers remain unchanged

- delta (delta) - characterizes the rate of change in the price of options depending on the fluctuations of the underlying asset

- gamma - determines the rate of delta change depending on the price of the underlying asset

- vega (vega) - determines the rate of change in the option price depending on volatility fluctuations

- ro (rho) - characterizes the sensitivity of the option price to changes in interest rates

- theta (theta) - reveals the sensitivity of the option relative to the time factor

— the process whose speed is described by theta is called temporal decay; theta value is always negative, which creates problems for the buyer of the option and helps the seller of the option

— the main feature of options analysis is a specific way of constructing a price chart; if during technical analysis charts are built in time-price coordinates, then options are presented in the yield profile video

MY EVALUATION OF THE BOOK

(from 1 to 5, where 5 is the highest score)

Simplicity (accessible presentation, clear structure, clear logic) - 2

Depth (detail, nuances, facts, general conclusions) - 4

Brightness (emotional experiences, vivid images, motivation) - 3

Practical benefits (use in trading) - 5

14 points out of 20 possible

That's all there is to it. If this review was useful to you, like it using the social network buttons.

Sincerely, Alexander Shevelev.

Mikhail Chekulaev is a trader.

He has a higher education in physics. First share deal in 1991. First option trade in 1998.

Author of books about options: “Mysteries and secrets of option trading” (2000), “Risk management. Financial risk management based on volatility analysis” (2002), “Financial Options: A Guidebook” (2013)

He worked in business journalism, many private investment projects of various types in various capacities: analyst, manager, consultant. He is not associated with any financial structure and is not engaged by anyone.

Books (2)

Riddles and secrets of option trading

Mysteries and Mysteries of Option Trading is a guide that can guide the interested reader through the intricate labyrinths of stock options trading, demonstrating truly fantastic possibilities in making trading profits around the clock, which cannot be said about traditional portfolio management approaches.

Risk management

Risk management is the main component of success in the world of finance and investment. Today, three-quarters of the efforts of companies focused on the future are spent on risk management.

Successful businessmen and investors are those who know how to find a balance between risk and return, and this requires effective risk management methods.

This book introduces price volatility risk management concepts that provide a powerful mechanism for generating profit both in financial markets and in real business.

Overview of standard

strategies and management

After such a long journey through various option strategies, viewing their charts and studying the behavior of curves describing the dynamics of a particular value, you have a legitimate question: "Which strategy is the best?" There will be no specific answer to it. The hard truth is that the best strategy simply does not exist.

Kaltsrya of them contains some set of shortcomings. Each is designed to extract the outcome of a certain market situation. Therefore, it is quite natural that in any circumstances it will work very mediocrely or even badly. For example, a strategy designed to capitalize on range trading cannot be expected to perform well in a highly evolving trend. And a trend-oriented strategy is unlikely to perform well in a sluggish market. Therefore, the key to success is the coincidence of the forecast and reality, to which the strategy used is adequate.

But what then is the difference between trading with securities and trading with options? Indeed, in both cases, the real market should correspond to the forecast. And if so, then why "fence the garden", isn't it easier to trade in what requires less effort and pangs of creativity? But a trap. Rather, such reasoning is a trick that is used with success by those who are not inclined to burden themselves with excessive knowledge in the field of investments. The fact is that options in exchange for certain labor costs provide additional opportunities. And if the reader has reached this point, then he can no longer be classified as an investor who does not care about his own education, the purpose of which is to preserve and increase his own capital.

fit or suitability

Options have the quality of "adequacy," "appropriate," or "preferable," which in the investment industry is defined by the word "best." The whole point of this rather subtle trick lies in the availability of forcing x3 options of such strategies that could behave affectively in an intermediate area of managerial decisions that is not characterized by psyarnyach and a firm definition of the situation. In other words, the option strategy can potentially be suitable