just curious to see if anyone here has come across a book or books on options trading with the practitioner in mind? My lecture slides for instance, go through black scholes and the ins and outs of the derivation, ito’s lemma etc, but they are very light on how the BSM is actually used in practice (ie reality). Any ideas?
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1$\begingroup$ BSM isn't used in industry (absent implicitly in calculating implied vol). Natenburg is kind of the bible. I read Euan Sinclair's first book a couple months back and enjoyed it. Not sure if it's where you're coming from, but no one is going to provide meaningful trading strategies. At best, they provide tools and you need to formalize how to use them. $\endgroup$– ChrisCommented Apr 4, 2020 at 9:27
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$\begingroup$ Thanks @chris for the insight. Two follow ups from me. In terms of the tools needed to trade options, natenburg is the first point of call then I gather from the above? Also, what’s your opinion on taleb’s dynamic hedging? $\endgroup$– AShortSqueezeCommented Apr 5, 2020 at 23:47
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In my opinion there is one modern author on the subject of practical options trading who stands head and shoulders above the rest, and that is Euan Sinclair. His most recent book is Volatility Trading, and he has another book out soon.
Sinclair covers actual strategies, along with questions of liquidity and position sizing that I never see in other options books. He writes clearly, and (though I have not evaluated its quality) includes source code.
Though @Giovanni recommends Hull's classic, I find that text to be more of an academic encyclopedia than a practical guide. It is a great book but its scope is too broad to provide the detail you need. These days, I rarely look at Hull because for each subtopic, there is typically a more detailed book or article that serves as a more complete starting point.
One other classic book, that contains a lot of the practical thinking you might want, is Nateberg's Option Volatility and Pricing. It has often been treated as a more intuitive and practical companion to Hull, with good reason.
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1$\begingroup$ @ Brian B appreciate it and reached similar conclusions having gone through the above books over the last month or so. Any thoughts on dynamic hedging by taleb? $\endgroup$ Commented May 4, 2020 at 16:00
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$\begingroup$ @ Brian B, I have also struggled to find a reference which goes into the nitty gritty of the B-S/Binomial model implementation in practice (eg IV estimation for european and american options on stocks with dividends). Perhaps there is no such reference :( $\endgroup$ Commented May 4, 2020 at 16:04
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I’d say Hull’s “Options, Futures and Other derivatives”, whatever edition is fine.
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$\begingroup$ I do have this one @giovanni given this is the reference being used in conjunction with my lectures. Appreciate it though $\endgroup$ Commented Apr 5, 2020 at 23:49