Option Trading Blog

I am a firm believer in educating yourself, and books are a great way to learn about trading. While there is no subsitute to gaining experinece in real trading, you can gain a lot of new prespective from books. A common mistake, not only in trading, is not having experience at all and then learning the books. That causes a lot of advice in books go unappreciated and seem out of contex. DO NOT FALL IN THIS TRAP.

Basically, there is not end to learning and what you really need is getting the basics down and not being afraid to discover things as you go along. The books on the subject of trading vary and it depends on your wants and needs.

You do not have to be a math genius to understand the basics of options and stocks trading, it will just take you some time and motivation. There are great books out there to get you into speed with the math you need in order to have solid foundations.

I am going to recommend you books I have found are very clear and down to the point. I own all the books myself and I have many more but these are the most useful I have found.

When it comes to mathematical finance I recommend The Concepts and Practice of Mathematical Finance (Mathematics, Finance and Risk) as a good introductory book. It has a touch of everything and it has a clear writing. If options are still new to you, you may find a more subtle introduction to options with no math in any number of books of your choice or even from the web.

Let’s start with probability and statistics. It is used all the time in option pricing. This usually is divided into two categories: advanced and basics. In the basic I recommend Probability and Random Processes. If you want it too hard then you may also consider purchasing First Course in Probability, A (7th Edition) which has a lot of fun examples.

When it comes to advanced probability, trouble usually arises because this involves measure theory. However, I have found a great simple book for this. A First Look at Rigorous Probability Theory is good and has the easiest proofs I could find. The background in measure theory and analysis is found in a book I cannot bookmark but is found in most Israeli Universities and is EXCELLENT. The book by the open university called measure theory. It is EXTREMELY GOOD and has all you need in measure theory. If you can’t have this book, it’s a shame. The next in measure theory I recommend would be The Elements of Integration and Lebesgue Measure. Cheap and good and also straight to the point.

These books will help you get started and if you master those, you will have an easier time. In the next week I will post about more good books about trading, not math to let you know what the pros are doing. After all, the math is only part of it.

P.S If you forgot some of your analysis, a real gem is Analysis: With an Introduction to Proof (4th Edition). Very good and clear.