Levy, Visual Guide to Options

I’ve never started a book review by quoting the acknowledgments, which are typically laundry lists of people who assisted the author in some way or another. But Jared A. Levy has written something totally different, which I think bears sharing: “Nothing truly meaningful in life is created or even possible if not for the trials and tribulations that shape us as humans. I’m most gracious to life’s mountains that have stood before me, challenged me, and ultimately given me a chance to get a better view of the beautiful existence I have been fortunate enough to live. Thank you.”

And now to the book proper. Retail investors and traders are flocking to options and, according to a recent article in The New York Times, not exactly producing bonanza results. SigFig, a company that tracks 200,000 retail investors, reported that “people who traded options last year received only about one-fifth the returns of people who did not trade options: 1.1 percent compared to 5.1 percent.” That pathetic figure would indicate that most option traders have very little idea what they are doing. They are gambling instead of speculating.

Visual Guide to Options (Bloomberg/Wiley, 2013) joins a host of books on option trading that, I suspect, few people who are willing—nay, eager—to throw money to the wind on poorly conceived option trades and probably nonexistent trade management strategies have ever bothered to read. Admittedly, reading an overview of option trading does not guarantee that future trades will be well constructed and intelligently managed, but it should at least provide a glimpse of the mountains that challenge the serious option trader.

Levy’s book touches on all the points that a novice option trader should know and some, such as volatility skew, that are a bit more advanced. Unlike many books on options that tend to be purely descriptive, it emphasizes the kind of strategic thinking and hypothesis testing that are essential for successful option trading.

But what really differentiates it from its many competitors in the field is its visual component. In the past I have criticized the Bloomberg “visual” series for its gratuitous use of colored boxes that did little to complement the text. But here the color overload actually works.

First of all, there is the Bloomberg screen eye candy. Using a Bloomberg terminal may compromise your privacy and blow out your checking account, but the available data—both raw and statistically analyzed—and graphics are mind-numbing. The TOS platform, although impressive, doesn’t quite measure up. Even though the retail trader is unlikely to have access to a Bloomberg terminal, I still think it’s important for him to understand what the big boys look at. They are, after all, the competition. Levy’s many screen shots offer the reader a tantalizing entry to this world.

Second, even the more seasoned trader can occasionally profit from reading some of the colored boxes. I would especially call attention to those labeled “Smart Investor Tip!” and “Step by Step.”

Levy’s book might be a bit of a stretch (albeit a doable stretch) for the rank novice, but it should be a useful read for anybody with modest options experience and/or meager trading profitability.