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Holy-Kimoly t1_j9crbiy wrote

Reply to comment by Hairy-Thought6679 in Guys I want to read a book by Hairy-Thought6679

If you are going to put together a true "trading" program, that is the way to go to skin the cat correctly. Computer aided drawing on graphs isn't going to cut it, not by a long shot.

For options, you should study up and understand the Black-Schoels model. Best if you can write out the derivation yourself. Then look at the market empirically, where the results in the real world differ from the how the market treats those aspects. Read up on the Greeks, so you can understand them. Although depending on your approach certain Greeks may be totally unimportant to you. Understanding that is a lot less difficult than putting together a trading program.

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Hairy-Thought6679 OP t1_j9cthx0 wrote

A mostly cemented trading program would be ideal. Obviously not fully because you’ll need to adapt to tomorrow’s variables.

I think part of what is missing from my knowledge base is definitely going to be the special named models/formulas. I can buy as many books as I want but if I’m missing the core underlying fundamentals it won’t make a difference.

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haarp1 t1_ja77nad wrote

correct me if i'm wrong, but BS doesn't work that much for american options because of early assignment risk...

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Holy-Kimoly t1_ja7pgt5 wrote

That is incorrect, although your point is fair. You do need to make some adjustments for dealing with American options. The theoretical framework around BS is for European options, and doesn't directly consider early assignment. The model is also built on a normal distribution curve, and the stocks don't behave as a normal distribution curve. It is a model, it certainly isn't "perfect", but it is a really good model that help to understand the mechanics behind option valuations.

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