To celebrate the New Year, the SpreadHunter Team is offering our non-definitive, entirely subjective and very opinionated list of the 10 Best Options Trading Books to Buy in 2016.
Caveat Emptor: The written word does not always translate well to the the domain of options trading. It is similar to writing a 19th century novel using PowerPoint. A few ideas get through, but a lot of critical information is simply not there. And never will be.
At the same time, a skilled trader can improve his results by reading these books, all things being equal. Even given their limitations. If most of the book is terrible, it can still improve total returns if there are one or two good ideas in it, and the trader implements the good ideas in a LARGE position size and the loser ideas on in a SMALL position size.
Not surprisingly, many of the leading authors in the options literary genre, including more than one of our personal favorites, were indifferent or even terrible traders on and off the floor. This is to be expected. There are not enough hours in the day to maintain trading technique and also write a decent book. So a symbiotic rhythm develops, where book authors spend all of their time doing research and all of the traders spend all of their time trading without reading trading books at all. Until something bad happens.
Our #1 Favorite Book to purchase in 2016 is Nassim Nicholas Taleb’s masterpiece from 1997, Dynamic Hedging. This text contains the greatest density of trading information and high level mathematics of all of Nassim’s books. The one downside is that Dynamic Hedging lacks the brilliant literary insights found in Taleb’s later works.
Correcting the limitations in our #1 pick our #2 Favorite is written by the commodities trader Constantine Cavafy, who retired from trading and became one of the greatest poets of the 2nd-20th centuries.
Our #3 Favorite is the 9th Edition of John Hull’s classic mathematical text, Options, Futures, and Other Derivatives, which is best savored with an optimizing C or C++ compiler. A must for quant traders, HFT practitioners, and computer programmers looking for a raise in their next position.
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 Ursone’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.
Important: this is a book on the Black Scholes Model, not the Binomial Model. If the hedge ratios in the book don’t match the hedge ratios on your Risk System or Trading Sheets, this is probably why.
Our #5 Favorite is Lawrence McMillan’s classic Options as a Strategic Investment.
Our #6 Favorite is a brand new (November 2015) book by Alexander Stepanov, From Mathematics to Generic Programming, written by the computer scientist who wrote the C++ Standard Library. An absolute must for HFT traders and quant analysts who want to improve their logical thinking skills beyond Java, Python, and (choke) spreadsheets.
Our #7 Favorite is a set of works by Anti-Modernist architect Christopher Alexander. Although his theories of architecture contain no computer code at all, or any mention of computers, Alexander’s architectural works from the the 1970s revolutionized computer science in the 1990s via the Design Patterns movement. Traders looking to find deeper abstractions in their strategies, without becoming academic losers, will find great insights here.
Our #8 Favorite is the 1951 Edition of Graham and Dodd’s Securities Analysis.
Our #9 Favorite is David Swensen’s Pioneering Portfolio Management. A lot of the concepts here have great value in managing options positions.
Our #10 Favorite is Haim Bodek’s The Market Structure Crisis. This book has the best chance of all the books on this list, of becoming 100% obsolete in one year or less. A very good thing, if it happens. Until then, traders should treat this as addressing a very necessary evil.
I forgot to add Marty O’Connell’s book, The Business of Options. Marty taught Nassim Taleb and probably several other authors on the list that I don’t know about.
A few books that did not make the list…
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