Equity Derivative Trading is a vast subject and with so much of information available these days on internet it can be overwhelming at times to pick up the right content. I have tried to list down few books which I found very helpful.I am listing in the order they should be read in order to gain most from them:
- Option ,Futures and Other Derivatives by John Hull: As Cliche as it may sound this is the book to start learning about derivatives in general.It will touch upon different kind of derivatives,the process of pricing ,the basic strategies.It deals with mostly theoretical concepts but not actual trading problems and hedging nuisances.
- Trading Option Greeks by Dan Passarelli: This books talks about the various greeks i.e. delta ,gamma etc and how we can use to manage our position using them .It has lot of examples to go with the theory and is more oriented towards trading. The good part is that book is quite simple to absorb and someone with basic maths knowledge will be able to go through it.
- Option Volatility and Pricing by Sheldon Natenberg : Lot of stuff if you want to understand how each stategy is affected by multiple factors like volatility and time.Also it discusses the risk in each strategy at a very granluar level.After going through this book it is expected that you would understand the risk ,reward and problems for most strategy.
The books we have covered till now help us to create a solid base in equity derivative. The next few books will help us to create a process for trading and risk management
- Option traders hedge Fund by Dennis Chan ,Mark Sebastian: It contains a step by step guideline to set up your own trading system.It also has actual trading problems and solutions. It also covers how and when to enter some strategy when is the right time to get out,how to set loss limits
- .Volatility Trading by Euan Sinclair: This book is mostly oriented towards professional traders as it has some really good mathematical methods to calculate and forecast volatility for pricing . Mathematics behind ideal way to delta hedge, do your money management.All the factors which will really count for a someone who is trading at a high level.
- Option Trading The Hidden Reality by Charles Cottle: Last but not the least. Reading this book will give you a completely new way to look at each strategy.How you can slice and dice each position.How to convert one strategy to another. It also dwells upon ways to get in and out of position in most efficient way. The biggest takeway from this book is how you can have multiple position and still break it down to simple positions to understand your actual risk and reward.Though this book is slightly difficult and some parts might be confusing for a beginner but its worth the read.
Dynamic hedging By NassimTaleb: This book is more relevant for risk managers.It covers lot of exotic options also so it might not be very relevant for a retail Trader but if someone wants to know the nitty gritties of risk management for a exotic option book this book is very helpful.
Bible of Option Strategies by Guy Cohen:As the name suggest here you will find description of almost all the major option strategies ,payoff diagram and greeks for them.Good book for a quick reference on any particular strategy you want to deploy.
Bottom Line: These books will help you to accumulate all the knowledge you need to have for equity derivative trading but it is paramount that you start trading alongside to really understand the intricacies .