Advanced and Synthetic Strategies
Because the value of an option is derived from something else, there are ways to use options to mimic the performance of many different financial assets—and vice versa. Much of the power of options comes from their ability to replicate other assets; how the price of different strategies relates to the price of the underlying is another way to use the options market for information.
Chapter 11 covers other types of traded derivatives, and Chapter 12 looks at synthetic versions of assets created with options and futures. Chapter 13 shows how these different combinations are used to set up arbitrage trades, and Chapter 14 shows how to look at the trading history of an underlying asset or a derivative to find trends that might indicate future prices. Chapter 15 discusses fundamental analysis, which drives a lot of options trading. The stronger the evidence is backing that belief, the less risky the position. Chapter 16 helps you sort through the different sales pitches out there so you can find what works for you to trade with more success.
This information helps you learn more about the importance of options in both financial theory and actual practice. With it, you will be in a better position to develop strategies for hedging and speculation, no matter the underlying.