Option trading in practice .... 10

Maintenance of option positions ... 17

Call overwriting.... 20

Protection strategies using options.... 26

Option structures trading ... 32

Volatility trading using options ..38

Variance is the key, not volatility ..47

Volatility, variance and gamma swaps.... 50

Options on variance ... 62

Correlation trading.. 66

Dividend volatility trading.. 80

Overpricing of vol is partly an illusion .... 84

Long volatility is a poor equity hedge ..86

Variable annuity hedging lifts long-term vol . 89

Structured products vicious circle.... 91

Forward starting products ..... 96

Barrier options ... 104

Worst-of/best-of options..... 108

Outperformance options ... 110

Look-back options .... 112

Contingent premium options... 113

Composite and quanto options...... 114

Relative value trading..118

Trading earnings announcements/jumps...... 124

Stretching Black-Scholes assumptions .... 128

Skew and term structure are linked.... 138

Square root of time rule can compare different term structures and skews..... 144

How to measure skew and smile...... 149

Skew trading...... 154

Local volatility... 172

Measuring historical volatility ... 174

Proof variance swaps can be hedged by log contract (=1/K2).. 184

Modelling volatility surfaces .... 186

Black-Scholes formula... 189

Greeks and their meaning . 190

Advanced (practical or shadow) Greeks ... 194

Shorting stock by borrowing shares.. 197

Sortino ratio...... 200