Preface xix 
There were substantial revisions to the chapters on index options as well. Part 
of the revisions are due to the fact that these were relatively new products at the time 
of the writing of the second edition; as a result, many changes were made to the prod­
ucts - delisting of some index options and introduction of others. Also, after the crash 
of 1987, the use of index products changed somewhat (with introduction of circuit 
breakers, for example). 
FOURTH EDITION 
Once again, in the ever-changing world of options and derivatives, some new 
important products have been introduced and some new concepts in trading have 
come to the forefront. Meanwhile, others have been delisted or fallen out of favor. 
There are five new chapters in the fourth edition, four of which deal with the most 
important approach to option trading today - volatility trading. 
The chapter on CAPS was deleted, since CAPS were delisted by the option 
exchanges. Moreover, the chapter on PERCS was incorporated into a much larger 
and more comprehensive chapter on another relatively new trading vehicle - struc­
tured products. Structured products encompass a fairly wide range of securities -
many of which are listed on the major stock exchanges. These versatile products 
allow for many attractive, derivative-based applications - including index funds that 
have limited downside risk, for example. Many astute investors buy structured prod­
ucts for their retirements accounts. 
Volatility trading has become one of the most sophisticated approaches to 
option trading. The four new chapters actually comprise a new Part 6 - Measuring 
And Trading Volatility. This new part of the book goes in-depth into why one should 
trade volatility (it's easier to predict volatility than it is to predict stock prices), how 
volatility affects common option strategies - sometimes in ways that are not initially 
obvious to the average option trader, how stock prices are distributed ( which is one 
of the reasons why volatility trading "works"), and how to construct and monitor a 
volatility trade. A number of relatively new techniques regarding measuring and pre­
dicting volatility are presented in these chapters. Personally, I think that volatility 
buying of stock options is the most useful strategy, in general, for traders of all levels 
- from beginners through experts. If constructed properly, the strategy not only has 
a high probability of success, but it also requires only a modest amount of work to 
monitor the position after it has been established. This means that a volatility buyer 
can have a "life" outside of watching a screen with dancing numbers on it all day. 
Moreover, most of the previous chapters were expanded to include the latest 
techniques and developments. For example, in Chapter 1 (Definitions), the entire 
area of option symbology has been expanded, because of the wild movements of