If you’re moving through my list of recommended resources in order and you’re reaching this book, The Option Trader’s Hedge Fund, then by now you’ve likely placed a few live options trades. Maybe had some success and depending on money management may also be experiencing losses in excess of profits. Relax, you’re not alone and your not the first to traverse this path.
You can relax because when you’ve concluded reading the list of materials, in order, on this site you’ll be better prepared than 80% of market participants. By committing the time and energy to reading and comprehending the resources presented here you’ll instantly leap above most other traders. Why? Because people are lazy and they want instant satisfaction, they want instant profit! But that’s insane given the number of possible options strategies and the even greater number of unique situations in which they profitably apply.
In any case, The Option Trader’s Hedge Fund will introduce the eager options trader to the concept of setting up a mini hedge fund style account. The book is an introduction to options trading on another level. In which, countless examples are shared for when and how to hedge trades using options, equities, or even futures. All while maintaining a primary focus on the management of each hedge to increase overall returns.
A hedge fund trading approach considers a portfolio of positions where the trader is exposed equally to several different industry sectors or different assets. The hedge fund approach is about diversification and consistent mechanical management.
“The hedge fund approach to trading looks at an entire portfolio of positions”
The early pages of the Option Trader’s Hedge Fund detail similarities of the insurance industry to the successful operation of a hedge fund. Of truly particular interest, the value of this section should not be understated. It is the stage from which The Option Trader’s Hedge Fund is written and from which it stands. Understanding the text that will follow starts with thinking about actively running a business, not just placing trades. Although that’s exactly what your doing. In reality, the chapters relating to insurance turn the trader into a chess player, provoking thought of various moves in advance to support “business decisions”.
Moving forward, the next three sections document proper trade selection, risk management, and profitable execution. All of vital importance to trading or running your business. There are discussions over volatility, pricing, adjusting trades, and even skew, each of which being considerations the “business manager” must review before initiating a position.
Part II of the Options Traders Hedge Fund is focused entirely on implementing or operating the traders hedge fund business. In very detailed order Mr. Chen and Mr. Sebastian navigate the business parameters from the ground up. Starting with execution of a viable trading plan and finally rounding out the section with several insights from a former professional trader.
I cannot truly say enough about the power of this book. Is it perfect? No! Could it use a more thorough discussion over a some topics? Sure. But if you understand what the authors are really saying then you will be on your way to a successful trading. It is a powerful trading concept and may well be the key to long term success in this business.
Wishing you a life time of profitable trading,
Jeff “The Option Boxer”