Spreadhunter, by David Janello (www.spreadhunter.com)
Our #4 Favorite is Pierino Usone’s How To Calculate Options Prices and Their Greeks
One of the most frequent complaints I get about the Taleb and Hull books is that the math is too hard. Pierino Usone’s book on how to calculate options is very clearly written, if you read it Hull and Taleb should make sense. Plus, very good trading insights in how to use theoretical prices in actual trading situations.
Those option traders who care about the Greeks (and not all do) normally rely on trading platforms for their calculated values. Why do the calculations yourself when an algorithm can do it for you? Just as no adult works out a long division problem on paper, almost no option trader bothers to use the Black Scholes model to solve for a value that he can find by plugging a few numbers into an online calculator.
The problem with taking this shortcut is that most option traders don't understand how their positions can change prior to expiration. They don't know what's under the hood. And, unlike driving a car from point A to point B, where the road is relatively straight, the car is reliable, and you can arrive safely at your destination in blissful ignorance of how the parts of the car work, trading options without any knowledge of how the Greeks affect both one another and the price of options can be lethal.
Pierino Ursone's How to Calculate Options Prices and Their Greeks: Exploring the Black Scholes Model from Delta to Vega (Wiley, 2015) sets out to fill this void. It requires no advanced math skills (though occasionally it invokes Excel to make the reader's life easier) but instead offers mostly back of the envelope calculations.
For instance, the 20% to 80% delta region is almost linear. "This linearity promotes working with a lot of rules of thumb and easy derivations for the Greeks. It is a strong tool for being able to come up with values for the Greeks without applying the option model." (p. 79)
The book is not for beginning option traders, but at the same time I don't think one should wait too long before tackling the material it covers. I personally learned quite a bit from it, much of practical value. And it's a book I'll keep around for when I need a refresher course.
Matt Daen, Options Specialist
Pierino Ursone’s How to Calculate Options Prices and their Greeks provides a long overdue, comprehensive, and at the same time digestible update to the literature exploring options pricing and strategy. His writing is clear, concise, and straightforward; unlocking the Holy Grail for the inexperienced and even the most experienced options trader.
Ursone liberally illustrates each chapter with graphics and acknowledges the Black Scholes Model’s mathematical and theoretical underpinnings in plain, straight-forward language that makes new understanding of the complexity of options trading possible for both the novice and the expert. Ursone’s thorough explanation of the practical application of first and second order greeks goes beyond the simplistic, two-dimensional strategies most traders will find when trying to educate themselves about options. He uses his vast experience and knowledge to act as expert, trader, tactician, and teacher, guiding readers through the markets and allowing them to look inside as they could never before.
“How to calculate options prices and their greeks” is by any means the best book I’ve read on options. Where other authors are lacking detail in their discussion of greeks and their implications, Ursone goes to great lengths to discuss the relevant greeks in a truly indepth and comprehensive way. Furthermore, Ursone discusses topics that I haven’t read about anywhere else, like properly managing a gamma portfolio, dealing with kurtosis in strategies and working with vega convexity. This book is a must read for anyone seriously involved in trading or managing a portfolio of options.
Excellent - written in a simple manner and really allows you to get an understanding of how options are valued without tricky formulas.
I've been trading Options for 7 years now. Once I realized that I needed to understand the Greeks and risk management, I started making money on a consistent basis. Pierino Ursone's book "How to Calculate Options Prices and Their Greeks" bridges the gap between Theory and real life practice. This author provides a level of math and graphs that solidifies your understanding of the Greeks. Dan Passarelli book "Trading Option Greeks" provides insight into the dynamics of the Greeks in your strategy and your risks. You can see the dynamics of the Greeks with Dan, especially on a practical level. Brian Johnson's book "Option Strategy Risk/return Ratios" provides a foundation on risk in a unique paradigm. Then you have Larry's (Lawrence McMillan, Options as a Strategic Investment) book on Options, considered to be the bible on options. Pierino Ursone's book links all the above books. He provides just the right amount of math. For example, he provides the definition of Delta as the first derivative and the corresponding formula. He then proceeds with a graphical interpretation of delta. Then he departs from most other books and shows how Delta changes graphically with concrete and practical trading. If you as a trader are able to put the formula, the graph, the numbers together as a dynamic trade, you will see in the utility in his book. He complements Dan, Larry, and Brian. Though you may trade options without knowing the Greeks, real traders know that the Greeks shows a sensitivity to risk.