The Unlucky Investor's Guide to Options Trading by Julia Spina & Anton Kulikov & Tom Sosnoff

Author:Julia Spina & Anton Kulikov & Tom Sosnoff [Spina, Julia & Kulikov, Anton & Sosnoff, Tom]
Language: eng
Format: epub
ISBN: 9781119882664
Publisher: Wiley
Published: 2022-02-23T00:00:00+00:00

GLD $125 –$424 83%

SLV $33 –$103 81%

Stocks AAPL $431 –$1,425 76%

GOOGL $1,108 –$2,886 80%

AMZN $1,041 –$2,215 78%

The tolerance for P/L swings, ending P/L variability, and tail exposure depends mostly on account size and personal risk preferences. If a trade approximately satisfies those preferences and the constraints previously stated, then the choice of underlying is somewhat irrelevant because of a concept called product indifference. Because IV is derived from option price, if two assets have the same IV, their options will have roughly the same price (as a percentage of underlying price). Consequently, one underlying will not give more edge with respect to options pricing inefficiencies compared to another, provided they have similarly liquid options markets. To visualize this, consider the example in Table 5.4.

Table 5.4 Two sample options underlyings with the same IV but differing stock and put prices.

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