Book Review - “Trading Option Greeks" by Dan Passsarelli

Probably like most option traders, I started trading options for its leverage back in the 1990’s, when I thought I was a genius of directional trading. Since, I have learned that I was merely at the right place at the right time, I have come to understand that the power of options goes beyond leverage and risk management. In fact, I have come to understand that time decay and volatility can be important factors in the pricing of an option and that they can too be exploited for profits, as we would exploit directional change in the underlying.

The Greeks measure the factors that determine the price of an option. Delta measures the effect of change in the price of the underlying. Theta measures the effect of the passage of time. Gamma measures the effect of the change in Delta. Rho measures the effect of chance in the interest rates. Vega measures the effect of the change in Implied Volatility.

Your risk, and reward, depends on your exposure to the Greeks, understanding them is paramount in guiding you to success in options trading. Today, I have come to understand that Vega can be quite powerful, particularly in times of uncertainty. The Greeks are usually covered in most option books, but hardly ever as the subject of the book, yet focusing on the Greeks can lead you to trade better, recognizing opportunities and pitfalls. Dan Passarelli’s book “Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profit”, takes exactly that approach, revealing to us how the Greeks function in an enjoyable yet thorough and direct approach.

I classify trading books in two categories: Sunday reading and consultation books. The Sunday reading books are those that I can read easily and enjoy, while imagining myself using the strategies in my own trading. The consultation books are those that I would rather read in portions that are full of theoretical material with profound knowledge. I have a hard time classifying Dan’ book in either category. It was certainly pleasant for me to go through the book cover to cover, but I can easily find myself going back to the book for consultation. I kept marking the book for some nuggets of information that I think will serve me well in my trading. I found a series of quotes that I can probably drop in some of my articles to explain in a few words what I would like my readers to remember in their own trading.

When we first start trading options we are keen on finding out about the different types of strategies. We are sold on the idea that learning a few spreads is all we need to know. As most traders come from a stock-trading background, we just think of Options as an instrument for vertical trading. We fail to see that options are complex and powerful at several levels. Suddenly, in one day of clarity we come to realize that an option is a chariot pulled by the Greeks. Go grab a copy of this book, even if you are a beginner. Once you have a grasp of the Greeks, then you’ll see how each different spread is the better choice in different situations. It is the Greeks that determine the best approach. If the different spreads are the tools at your disposal to make profits, then the Greeks are the factors that determine which tool to use in a particular situation.

Dan recently approached me to see if I would review his book. I have never been asked to do something like this. I have been trying to keep independent because my credibility depends on it. I think I would probably would do you a disservice if I did not recommend this book. It is important for me that you understand the subject well so that you can see the reasoning behind my own trading.

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