26 73 55 18.36Nw27 1066 44 28 70 54 17.96Dec 2 1066 443° 28 «669 52 18.08Dec3 1027 48 24 69 51 18.85Dec4 1030 49 24 70 50 19.21Dec5 1031 49 24 70 49 19.39Decé 1040 38 «629 «67 «(48 «(18.61Dec9 1030 48 23 68 47 19.24Oec10 1035 41 26 65 46 18.65
AN RUANIOO
Decil 1042 39 29 67 45 19.19Oec12 1046 34 32 66 44 18,98Oec13 1073 44 25 67 43 19.02Oec16 1056 35 31 86 42 19.19Oec17 1077 46 23 66 41 19,21Deci8 1086 43 28 69 40 20,23Dec19 1071 49 #24 70 39 20.92Dec20 1069 45 22 64 38 19.46Dec23 1075 46 21 64 37 19,52Dec24 1073 44 21 62 36 19,31Oec27 1089 35 26 60 34 18,95Oec30 10899 30 30 60 33 19.01Dec31 1100 31 29 60 32 19,23
 
LEGEND: fp = futures price, max = closest strike high option price, min = closeststrikelow option price, $ = price corrected at-the-money-straddle, td = number oftrading days till expiry, iv = implied volatility.A
Account diversification, 165
Advisory services, 14, 60
Arbitrage, 52
Armchair bookmaking, 168
Asked price, 155
At the market order, 156
At-the-money option, 12correction factor for, 90-92
B
Backgammon analogy, 116
Bauer, Jurgens, 156
Beardstown Ladies, 5
Bell curve, 22
Bettor's payoff, 31
Bid price, 155
Billion dollar blowout, 170
Black, Fischer, 43, 44
Black-Scholes formula, 42, 55, 66,82, 171
Boutique science, 131
Cc
Call option:definition of, 9I-day at-the-money, 32-36price parity of, 14, 41
Capote, Truman, 169
Cattle futures and options:case study of, 141-142five-year volatility profile, 2441996 volatility profile (chart), 2451996 daily statistics, 246-249
Chicago Mercantile Exchange, The,
119
Choppy markets, 125
Cocoa futures and options:five-year volatility profile, 2501996 volatility profile (chart), 2511996 daily statistics, 252-255
INDEX
Coffee futures and options:five-year volatility profile, 2561996 volatility profile (chart), 2571996 daily statistics, 258-261
Coffee, price change analysis of, 23-
28
Commission costs, 154, 160-162
Common sense, principle of, 5
Confirmation-bias syndrome, 6
Corn futures and options,case study of, 140-141five-year volatility profile, 2381996 volatility profile (chart), 2391996 daily statistics, 240-243
Correlation studies, 5
Cotton futures and options:five-year volatility profile, 2201996 volatility profile (chart), 2211996 daily statistics, 222-225
Crash Monday, 146
Crude oil futures and options:case study of, 142-145five-year volatility profile, 2141996 volatility profile (chart), 2151996 daily statistics, 216-219
D
Derivative variable, 18
Diversification, 165
Dow Jones Industrial Average, 167
Dynamic writing strategies, 115-126
EEducation & a Speculator, 5Equality of expectations, 111Equity swings, 116Execution costs, 154Exit and entry costs, 158Expectation:
call option buyer's, 33-34
269270 INDEXExpectation: continuedequality of, 111mathematical definition of, 31-32negative, 4positive, 4Exponential smoothing, 131, 149,170
FFair value:of an at-the-money option, 40-41concept of, 2, 32expressed as mean absolute devia-tion, 37, 82of 1-day call option, 32-37False optimization, 133Federal Open Market Committee,137-138Federal Reserve Board: 137, 169interest rate policy of, 137-138Feynman, Richard, 64Financial Analyst's Journal, The, 44Fixed price order, 148Frequency distribution: 22, 30of coffee prices, 26-27of silver prices, 26-27Fudging the numbers, 6Full disclosure, principle of, 6Fundamental overrides, 134-151Futures price:random nature of, 18, 23temporary equilibrium, 18
G
Gifford, Frank, 6
Globex, 119
Gold futures and options:five-year volatility profile, 2021996 volatility profile (chart), 2031996 daily statistics, 204-207
Gold options, pricing of, 12-13
Greenspan, Alan, 151
Gross trading edge, definition of,
151
HHedge funds, 169Hidden costs, 158High-tech psychology, 151Hogs and Pigs Report, 71Hypotheses:general testing of, 4, 11testing of straddle writing, 102-108, 119testing for overvaluation, 133-134using accurate data in testing of,155
I
Illiquid options, 154
Implied volatility, definition of, 55
Implied strike price, definition of,102
In-the-money option, 12
Independent variable, 18
Index funds, 150, 166
Insider trading, 167
Interest on option premium, 115
Japanese yen futures and options:five-year volatility profile, 1961996 volatility profile (chart), 1971996 daily statistics, 198-201
L
Larry King Live, 6
Limit order, 157
Logarithmic returns, 78-79Lognormal distribution, 77Long Term Capital Growth, 169Lottery analogy, 7
M
Mad cow disease, 141-142Margin requirements, 10, 166Market order, 156
Mathematical expectation, 31-32McMillan, Lawrence, 62-64, 82Mean absolute deviation:as primary estimator of volatility,82-83biased estimate of, 129-131definition of, 26in relation to call option price, 35-37relation to standard deviation, 38,81-83use in valuation tests, 126-132Merton, Robert C, 43, 169Million dollar formula, 4, 25, 43-46,63errors in, 47-51downfall of, 169-171Mutual funds, 150
NNatenberg, Sheldon, 66, 139Negative expectation, 4, 7Negotiated commissions, 161Neutralizing a problem option, 118,159New York Cotton Exchange, The,66, 156
New York Stock Exchange, The, 6New Yak Times, The:
reporting on OPEC intervention,
143-145
Niederhoffer, Victor, 5Nobel prize in economics, 43Non-representative data, 127Non-traded options, 154Normal distribution:
definition of, 20
examples of, 22-23
underpricing of options using, 48
oOOckham, William of, 37Ockhaim's equation, 41-42, 47, 52-55, 68, 83, 95for at-the-money straddles, 95-96,170
INDEX 271OPEC, 143Optimization, false, 133Option:
advisory services, 14, 60expiry date, definition of, 9in film industry, 8-9overvaluation, definition of, 14phantom, definition of, 88premium, definition of, 8price parity, definition of, 13straddle, definition of, 89strike price, definition of, 12time decay of, 67trading pit, 12undervaluation, definition of, 14writer, definition of, 7Option Volatility and PricingStrategies, 66, 139Options as a Strategic Investment, 62Out-of-the- money option, 12
PPayoff, bettor's, 31Payout ratio, 108, 116-117, 126-128, 131Persian Gulf War, 144Phantom strike price, 122Phantom options:definition of, 88calculation for, 92-96outcome from writing, 102-108Positive expectation, 4Price parity of at-the-money options,14, 41Probability:distributions, 29envelopes, 21Put option:definition of, 9price parity, 14, 41
RRacetrack analogy, 31Random variables, 22272 INDEX
Random walk, 39
Regression to the mean, 73, 75Resistance level, 150
Resting order, 160
SsS&P 500 Index future and options:five year volatility profile, 1781996 volatility profile (chart),1791996 daily statistics, 180-183volatility during market plunges,145-151Sample size, importance of, 128Sampling error, 23-28Scholes, Myron, 43, 169Scientific method, 4Secular trends, 133, 146Selectivity in writing strategies, 126-128, 132-134Settlement committee, 155Settlement prices, 155Silver futures and options:five year volatility profile, 2081996 volatility profile (chart),2091996 daily statistics, 210-213Silver, price change analysis of, 26-27Slippage, 153, 158, 165Soros, George, 5Soybean futures and options:five year volatility profile, 2261996 volatility profile (chart),2271996 daily statistics, 228-231SPAN, 166Square-root time relationship, 39,68, 97, 124, 150Standard deviation:annualized, 82definition of, 26error in trending market, 79-81of cocoa price changes, 77-81
Standard deviation: continuedof coffee price changes, 26of logarithmic returns, 79of a normal distribution, 22, 34of silver price changes, 26Stocks in All Positions report, 139Stop-loss order, 10, 119Stop-loss protection, 10Straddle, definition of, 88Strangle, 145definition of, 163Strike price, definition of, 9Subliminal bias, 101Sugar futures and options:five year volatility profile, 2621996 volatility profile (chart),2631996 daily statistics, 264-267Support level, 150Surely you're joking, Mr. Feynman?,64Swiss franc futures and options:five year volatility profile, 1901996 volatility profile (chart),1911996 daily statistics, 192-195System trading, 101, 119, 134
TTechnical analysis, 17Trading edge, 153, 166definition of, 151Trading market, definition of, 19Trading "volatility," 138Treasury bond futures and optionsfive year volatility profile, 1841996 volatility profile (chart),1851996 daily statistics, 186-189Trending market, definition of, 19Trigger levels, 121-125
UU-factor, The, 136-146United States Department ofAgriculture, 139
Unlimited liability, compensationfor, 115
Unreflected uncertainty, 112, 136
Vv
Volatility:calculation of implied, 55-58, 96definition of historic, 74definition of implied, 55definition of market, 4, 60implied versus market, 60-62, 67,
74-75, 128-134
Japanese yen example, 75-76skew, 64smile, 64
INDEX 273
WwW
Wall Street, 150-151
Wall Street Journal, The:reporting on corn stocks, 140reporting on hedge fund fiasco,
169-170
Wheat futures and options:five year volatility profile, 2321996 volatility profile (chart), 2331996 daily statistics, 234-237
Whipsaw, 161
Winner Take All, 1, 164, 166
World Trade Center, 108
Writer's edge, definition of, 4
Z
Zero-sum game, 7<|end|>