Options Trading: The Hidden Reality by Charles M. Cottle 430 pp. RiskDoctor, Inc.
Do you want to read one of the most difficult yet most rewarding options books published? Read Options Trading: The Hidden Reality by Charles M. Cottle. Currently, I rate it number one in the advanced general options trading category. Besides the wealth of material in the book, I like Cottle’s candor, humor, and honesty.
Cottle focuses a humorous and self-deprecating eye on himself in his story “Missing the Hedge.” This story has Cottle literally running around the S&P pit trying to hedge his options position and lock in a profit through buying 100 S&P futures contracts. Meanwhile, every minute it takes causes him to lose thousands of dollars in profit.
Hey Terry! Losing money ain’t funny! Did you take that line from Stephen Stills off the live Four Way Street album by Crosby, Stills, Nash, and Young? Stills was on stage warming up for his next song (remember, it’s a live concert) humming in tune with his acoustic blues licks when an audience member laughs. Stills, without missing a beat continues his blues licks and says in his deep, Southern voice, “One thing the blues ain’t … is funny.”
No? You didn’t take the line from Stills? OK, Terry, quit digressing and answer the man’s implied question. Losing money can be funny if it happens to someone else in humorous circumstances. Hey! Don’t stare at me that way! It is Cottle’s story, after all. And to give Cottle proper credit for his humor, after recounting his story he writes,
“The lessons from the above example are: If you ever catch yourself smiling after a trade, it might be already too late to get out.”
You’ll have to read the book to hear his second, most important lesson.
And for you cooking enthusiasts, Cottle does mention the ‘jelly roller’ (Pssst! Terry! That’s a professional option term … oh). Wait a minute! On page 183, he does talk about “synthesizing out a jelly roll.” Don’t be stupid, Terry, that’s not from cooking class, it’s from chemistry lab.
For the drudgery-minded, here is a chapter listing (titles shortened): 1. Synthetics 2. Adjustments 3. Nuts and Bolts of Options 4. Strangles and Straddles 5. Verticals and Collars 6. Wingspreads 7. Multi-Expiration Spreads 8. Market Makers Insights 9. Hybrid Hedging 10. Skew 11. Option Dialogue and Epilogue. This book is a jam-packed 430 pages.
How do you know Cottle is honest? Puhleeze! He is the Risk Doctor (enter Dan Aykroyd playing Dr. Detroit. http://www.youtube.com/watch?v=P4fj-1Y81vo) And an apt quote from the song “The Doctor Will See You Now” by Stephen Stills (him again?), “What do you say when you’ve said everything?” You say more.
Humor aside, Cottle — with great integrity and precision — discusses many ways to reduce risk using options. He can save you money! Cottle trains professional traders (market makers on the floor, screen market makers, hedge fund managers, prop traders and market takers). Please click the link on my blog if you are interested in Charles Cottle’s free five-day options course. And, in summary, if this book is too hard for you, get mad at Cottle, not me.