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GENERAL PRINCIPLES OF TRADING AND HEDGING

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GENERAL PRINCIPLES OF
TRADING AND
HEDGING



to be a good option trader, one must first be a good trader. Sometimes the particular complexities of managing an option position can blind us to this fact. In order to be successful, we have to put ourselves in situations where we can buy low and sell high. Humans have been trading forever. Despite this, there is no consensus about what good trading practices are. Perhaps when it comes to specifics this is to be expected. By its nature successful trading can destroy the anomalies that make it possible. However, at a more general level we can state the essential characteristics that all successful trades must have. Further, it is almost certainly a better idea to improve upon a method that others have found to be successful than to try to find something completely new.


I want to emphasize the place of this chapter. This is meant to complement innate trading skill, which I certainly believe exists. I do think that a solid grasp of the quantitativ…