This book is about trading volatility. More specifically it is about using options to make trades that are primarily dependent on the range of the underlying instrument rather than its direction.

Before discussing technicalities, I want to give a brief description of my trading philosophy. In trading, as in most things, it is necessary to have general guiding principles in order to succeed. Not everyone need agree on the specific philosophy, but its existence is essential. For example, it is possible to be a successful stock market investor by focusing on valuestyle investing, buying stocks with low price-to-earnings or price-to-book ratios. It is also possible to be a successful growth investor, buying stocks in companies that have rapidly expanding earnings. It is not possible to succeed consistently by randomly acquiring stocks and hoping that things just work out.

I am a trader. I am not a mathematician, financial engineer, or philosopher.

My success is measured in profits. The tools I use and develop need only be useful. They need not be consistent, provable, profound, or even true. My approach to trading is mathematical, but I am no more interested in mathematics than a mechanic is interested in his tools. However, a certain level of knowledge, familiarity, and even respect is needed to get the most out of these tools.

There will be no attempt here to give a list of trading rules. Sorry, but markets constantly evolve and rules rapidly become obsolete. What will not become obsolete are general principles. These are what I will attempt to provide. This approach isn’t as easy to digest as a list of magic rules, but I do not claim markets are easy to beat, either. The specifics of any trade will always be different, but general guidelines can always point us somewhat in the right direction. Some latitude in strategy is desirable and adaptability is essential, but there are also a number of things that have to be firmly in place in order to succeed. Picasso and Braque may have broken a lot of rules, but they could certainly paint technically very well before they did so. Before you start adjusting, make sure you have a good grasp of the fundamental aspects on which all trades need to be based: edge, variance, and appropriate size.