The Nuclear Option
Trading To Win With Options Momentum Strategies
Financial Weapons Of Mass Destruction
Regular readers may be familiar with David Janello. In addition to being a subscriber and commenter on this Substack, his firm, SpreadHunter, also sponsored this Substack for May and June. This is not a sponsored post though. I’ve read David’s new book and highly recommend it.
The title is a reference to Warren Buffett’s famous quote that options were “financial weapons of mass destruction”. And they can be, as David notes in his book:
Trading options directionally, using momentum strategies, is potentially the highest risk trading vehicle in a universe containing a large number of very risky ways to make and lose money.
What’s Different About The Nuclear Option
Here I’m going to quote from Janello’s book again, because I can’t paraphrase this point better than he puts it:
Most books and university classes on options focus on the mechanics of options contracts and math, with little or no attention to the implications for trading these instruments profitably. To cite one example, our favorite options book (by far) is Dynamic Hedging by Nassim Nicholas Taleb, which supplies a hard headed look at mathematical hedging strategies from the perspective of a desk trader at a major money center bank. Significantly, Dynamic Hedging does not contain a single paragraph on how to identify a successful directional or non-directional options trade. Its sole focus is on hedging preexisting inventory, using the nuances and idiosyncrasies of options contracts and their partial derivatives: Delta, Gamma, Theta, Vega and Rho.
The Nuclear Option takes the opposite approach. The emphasis is on trading, not on the options.
Nassim Taleb once expressed respect for my deadlift personal record, but our interactions ended when he blocked me on Twitter years ago, for some perceived offense I don’t remember. In contrast, David Janello has been unfailingly helpful when I’ve had questions about structuring options trades. He’s been trading options since the Carter administration, and he’s able to explain the pros and cons of various approaches without unnecessary jargon. The Nuclear Option is his counsel in book form. It’s worth reading if you want to trade options.
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