In Tae's Corner we bring you Tae's favorite trading books, strategies, and breakdowns so you can learn from the best.
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Today we're distilling one of the books Tae recommends to any serious trader - Options, Futures, and Other Derivatives by John C. Hull so you can improve your trading skills quickly.

Hull emphasizes that successful options trading starts with a solid grasp of the option “Greeks” – delta, gamma, theta, vega, rho – which measure how an option’s price responds to changes in the underlying price, time decay, volatility, etc. These metrics, derived from models like Black-Scholes, help traders anticipate how their option positions will behave as market conditions change.
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For example, delta shows how much an option’s price moves per $1 move in the stock, while theta indicates how much value an option loses each day as expiration approaches​. Mastering these concepts allows both day and swing traders to manage risk and make informed adjustments to their positions.

Implied volatility (IV) is a key driver of option premiums. Hull’s work underlines that options are often cheap when IV is low and expensive when IV is high​. A savvy trader gauges whether current IV is high or low relative to historical norms and plans strategies accordingly. For instance, if IV is low (options underpriced), it may favor buying options (expecting a volatility increase), whereas if IV is high (options overpriced), strategies like selling options or spreads can be more prudent​. Always incorporate volatility expectations into your strategy – a sudden IV spike or drop can impact option prices even if the underlying barely moves.

Hull’s book details the put-call parity relationship, which links the price of calls, puts, the underlying asset, and interest rates. In essence, a call’s price implies a fair price for the equivalent put (same strike and expiry) and vice versa​.
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If prices deviate from this parity, an arbitrage opportunity exists (e.g. buying an underpriced option and shorting an overpriced synthetic equivalent) – though such obvious mispricings are rare and quickly corrected in liquid markets​
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Both day and swing traders must manage risk proactively. Hull illustrates that derivatives provide leverage, which makes position sizing and stop-loss levels critical – a small adverse move can mean outsized losses if you’ve over-leveraged. Always know your maximum loss and use tools like protective puts or stop orders to cap downside. Moreover, be prepared for fat-tail events(extreme market moves). Markets don’t always behave as neatly as models assume; sudden news or shocks can cause gaps that blow past the projections of standard deviation-based risk models.
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Hull’s discussions on risk warn that large deviations occur more often than a normal distribution would predict​. In practical terms, this means even a well-hedged options position can suffer if there’s an abrupt, outsized move (because dynamic hedging strategies may fail to keep up in a sharp jump).
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​Actionable takeaways: never assume an option strategy is “risk-free,” maintain discipline in using stop-losses/hedges, and consider worst-case scenarios. It’s better to limit your trade size or lighten positions before major uncertain events than to risk catastrophic loss on a low-probability but possible outcome.

For day traders, liquidity is king. Focus on options with high volume and open interest (typically near-the-money strikes on popular stocks or indexes) to ensure tight bid/ask spreads. Avoid illiquid contracts – wide spreads cut into profits and slippage can turn a winning idea into a losing trade​.
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John Hull’s insights into market mechanics underscore that active traders should treat the bid/ask spread as a significant transaction cost. In fact, the spread is often the biggest expense for frequent options trading, even more than commissions​.
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Day traders often target quick, small profits from intraday price swings. Options can amplify these moves because short-dated contracts have high gamma (sensitivity to the underlying’s immediate moves). This means if the stock makes a sharp intraday jump, an at-the-money call’s price might surge disproportionately, offering an attractive profit. However, be aware of theta – the time decay on short-term options is like a ticking clock. Options lose value every day, and this decay accelerates as expiration approaches​. A one-day holding period can see an option’s extrinsic value erode significantly, especially if it’s a weekly option or expires tomorrow.
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​Actionable insight: Use that gamma to your advantage when you expect a big move today, but if the anticipated move doesn’t happen, close the position quickly. Don’t let a short-term option sit idle – every hour that passes eats into its value. In practice, many day traders prefer options expiring within a few days to leverage the high gamma, but they strictly limit holding time to avoid accumulating theta losses​.

One of Hull’s key points is understanding how events impact options. Day traders can strategically position for scheduled intraday events (like economic reports or product announcements). For instance, trading a straddle around a news release is a common tactic – buying both a call and a put can pay off if the news triggers a big move in either direction. A long straddle profits when the price swings significantly away from the strike price in either direction, but loses if the price stays flat​.
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The book’s coverage of option combinations indicates that such volatility plays should be executed with strict timing. Tip: If you enter a straddle (or similar long volatility trade) for a day trade, have a clear exit plan: ideally, close right after the volatile move occurs. If the anticipated movement or volume surge doesn’t happen as expected, cut your losses quickly because both legs will start decaying in value. Essentially, use event-driven strategies when you have an edge (e.g. you expect a bigger move or volatility jump than the market has priced in), but don’t linger in the trade once the event passes or if your thesis doesn’t pan out.

Advanced day traders can take a page from Hull’s discussion of dynamic hedging. Delta-neutral (market-neutral) trading involves balancing your position so that the overall delta is zero, meaning the position’s value isn’t affected by small moves in the underlying.
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Why do this? It allows you to profit from gamma (volatility of the underlying) intraday without betting on a particular direction​. For example, a trader might buy an at-the-money option and simultaneously hedge by shorting the underlying stock in proportion to the option’s delta. As the stock wiggles up and down during the day, the trader adjusts the hedge (selling stock when it rises and buying it back when it falls) to lock in profits – effectively scalping the gamma.
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Hull notes that delta-neutral positions isolate other Greeks like gamma and vega​, so the P&L comes from the magnitude of movement and changes in volatility, rather than directional bias.
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A cardinal rule for options day traders is to close positions by the end of the trading session. Hull’s work on daily settlement and margin calls in futures reinforces the risk of overnight holds: simply put, unpredictable things can happen when the market is closed. Earnings surprises, geopolitical news, or other events after hours can lead to large gaps in price by next morning. Day traders typically do not hold overnight positions specifically to dodge this gap risk​.
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An option that was safely out-of-the-money at yesterday’s close could be deep in-the-money (or vice versa) at tomorrow’s open if news hits – potentially turning a small loss into a huge one before you have a chance to react.
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​Key takeaway: lock in your profits or losses by day’s end. If you have strong conviction for a multi-day idea, that crosses into swing trading territory – for pure day trading, sleeping on an open options position introduces unnecessary risk​. By closing out, you also avoid additional theta decay and you start each trading day fresh, with no baggage from overnight moves.

Swing traders hold positions for several days or weeks, so time decay (theta) can substantially eat into profits if not managed. Hull’s analysis of theta shows that an option’s value erosion is gradual at first but speeds up dramatically in the final weeks before expiration​.
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For a swing trade, consider buying options with enough time until expiration to cover the length of your trade thesis – you don’t want the clock to be your enemy. For example, if you plan to hold a position for a month, an option expiring in two weeks is likely too short (the rapid last-leg decay will hurt you​).
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Instead, you might choose an expiration 1-3 months out and potentially sell it earlier before the steep decay kicks in. Another tactic is to offset theta by using spreads (discussed below) or by trading in the direction of positive theta.
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Swing traders can also stagger exits: if your option has profited and now only a week remains, consider taking profit or rolling into a longer-dated contract rather than sitting through the final rapid decay. Always balance the cost of extra time (longer-term options are more expensive) against the benefit of slower decay.

Unlike day traders, swing traders often hold through earnings announcements, Fed meetings, or other news. Hull’s teachings on volatility dynamics are crucial here: implied volatility usually builds up before a major event and then drops sharply right after the news is out, a phenomenon known as volatility crush​. If you’re long options into an event, that post-event IV collapse can hurt you even if you predicted the direction of the underlying correctly.
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​Actionable strategies: If you expect to catch a move through an event, you could take profits just before the announcement when IV is peaking, or at least scale down to reduce exposure. Alternatively, structure your trade to benefit from IV crush – for instance, a short straddle or iron condor going into earnings (sell high-priced options, aiming to buy them back cheaper after IV falls). These advanced strategies risk unlimited loss (short straddle) or limited but potentially large loss (condor) if the move is big, so they must be used with caution and proper risk limits.
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A more conservative play is a long calendar spread: buy a longer-dated option and sell a near-term option that expires right after the event – if IV for the near-term option is pumped up, you’re essentially selling the event premium. The bottom line is to never ignore implied volatility around events. Either avoid holding naked long options through the event or hedge/structure the position to account for the likely IV drop​. If you do hold a long option through an event, it generally needs a significant move in the underlying to offset the loss from volatility crushing down.

Hull’s book covers a spectrum of option strategies beyond simple calls and puts, many of which are ideal for swing trading. Vertical spreads (like bull call spreads or bear put spreads) are particularly useful for multi-day trades. By buying one option and simultaneously selling another, you reduce net cost and limit risk. For example, a bull call spread involves buying a call at a lower strike and selling a call at a higher strike – this strategy limits your upside potential but also limits downside risk and reduces upfront cost compared to a lone call​.
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If the underlying rises moderately, the spread will yield a profit, but if it soars beyond the higher strike, your gains are capped (you’ve given up extreme upside in exchange for paying less). The benefit is that time decay and minor volatility changes have less impact on a spread than on a single option, because the sold option’s decay partly offsets the decay on the bought option.
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While swing trading, adverse moves can happen overnight or over a series of days. Hull introduces protective strategies like the protective put, which is essentially an insurance policy on your position. If you hold the underlying asset (e.g. shares) as part of a swing trade, buying a put option gives you a guaranteed exit price for those shares through the put’s strike price​. This means no matter how badly the stock drops, your losses are limited beyond that strike (minus the premium paid). Swing traders who are long a stock or ETF can use protective puts especially around uncertain times – it’s akin to buying homeowner’s insurance before a hurricane.
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Another approach is the covered call if you own shares: by selling a call against your stock, you generate income that can buffer small declines (the premium received), though you cap your upside if the stock rallies. Hull’s examples show that a covered call works when you expect the stock to stagnate or rise just a bit​(this strategy is more about income generation and mild downside protection).
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For traders who do not hold the underlying, consider a stop-loss order on your option position or an alert to manually exit if the trade moves against you by a certain amount. Options can lose value quickly if your thesis is wrong, so define a max loss per trade. In summary, swinging for several days means you must plan for the worst: hedge where sensible and always know how you’ll contain a downside surprise. It’s better to take a small, planned loss (with a put hedge or stop) than to freeze while an unhedged position spirals.

Unlike day trades, swing trades aren’t “set and forget” – the risk profile of your option will evolve. As days pass, theta will increase (time decay pressure grows), and delta can change significantly as the underlying moves. Hull notes that an at-the-money option’s delta is around 0.5, but if the underlying rallies and your call goes deep in-the-money, its delta will approach 1.0​, meaning it now behaves almost like the stock itself. This can be a good thing (your option is deep ITM and highly valuable), but it also means your position is far more sensitive to any reversal. In such cases, you might choose to take profit or roll the option to a higher strike to reduce delta exposure. Similarly, pay attention to vega– if you’re long options, a decrease in implied volatility over your holding period will hurt your position; if you’re short, an IV increase will hurt. For multi-day trades, it’s wise to periodically re-evaluate: Has the underlying moved so much that my option is now almost all intrinsic value (delta ~1)? Has the implied vol dropped now that an event passed, reducing the option’s price? If so, adjust accordingly. You could roll your position (e.g., sell the now ITM option and buy a new ATM option to maintain exposure but take some profit off the table), or hedge the delta (maybe short some stock against a now deep ITM call).
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The key takeaway is to stay proactive. Hull’s framework of the Greeks is a tool here: check the Greek values each day or week. If your theta bill is growing, it might be time to exit or mitigate it; if delta has ballooned, consider trimming. Swing trading allows you to be flexible – you don’t have to hold the exact same position from start to finish. Adapting your position as the market unfolds is not only allowed, but often the difference between a winning swing trade and a round trip from profit back to loss. Keep your trade thesis in mind, but adjust the mechanics (strikes, expirations, hedges) to respond to new information and to keep risk within your comfort zone.

Feel free to explore the cited references for deeper insight into these concepts. Hull’s textbook provides extensive theoretical background, while the footnoted articles offer practical angles and examples for real trading scenarios. Concepts like Greeks​, time decay,​ and volatility crush​, are especially worth mastering through further reading if they’re new to you.
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Each strategy mentioned (from spreads​ to straddles​ and delta-neutral hedging​) has nuanced risks and variations, so digging into those details will sharpen your trading skills.
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Always continue learning – the derivatives market is complex, but as John Hull’s work shows, a strong foundation will serve you well in navigating both day trades and swing trades.​

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