In 2012, my first options trade lost $9,000.
12 months later I was making $1,100 per week trading in my free time.
What changed?
I read 20 books on options and finished a master’s degree.
But what took my game to the next level was Python.
Here’s the code I still use today:
A quick primer on options in case you're not familiar:
• Over $450 billion in notional trades DAILY
• 39 million options contracts trade DAILY
• 25% of total options trading is from retail
So how do we make money?
Trade options with a simple, 3-part framework:
1. Design your risk
2. Value the position
3. Measure and monitor
Now pair this framework with Python and you get a potent combination for making money trading options.
Let's dig in:
To design our risk profile, we need the option payoff.
Let's start by defining the variables we need:
• Stock price
• Strike price
• Time to expiration
• Interest rate
• Volatility
We also define market prices for demonstrating trades.
Remember our payoff functions for calls and puts?
• call = max(S - K, 0)
• put = max(K - S, 0)
We can define them in Python in one line of code each.
And here's where it gets really interesting.