ABSTRACT
In this chapter we approach options from a trading and management perspective, describing several commonly traded options structures as well as the set of sensitivities, or Greeks that are utilized in practice. We begin by reviewing the Greeks in the Black-Scholes model, with an emphasis on the properties of these Greeks for different types of options. We then introduce a fundamental relationship between two important Greeks, Theta and Gamma, and discuss the implications of this relationships for options traders. We also highlight many advanced concepts with respect to Greeks, including the calculation of Greeks in more advanced models, and the concept of smile-adjusted Greeks. Next, we highlight several fundamental options trading strategies including straddles, strangles, butterflies, calendar spreads and risk reversals. Finally, we consider a potential risk premium in the options market by introducing the so-called implied vs. realized volatility premium and analyzing it using live market data.
