Option Volatility and Pricing Review: Sheldon Natenberg's Options Trading Bible

The Book Every Serious Options Trader Eventually Buys

Sheldon Natenberg's Option Volatility and Pricing (2nd ed 2015) is the definitive options trading reference. Written by a former market maker, the book covers Black-Scholes pricing, implied volatility, strategy construction, and risk management at professional depth. It's considered mandatory reading for anyone pursuing options trading careers.

Short answer: Essential for intermediate-to-advanced options traders. 500+ pages of technical depth. Not beginner-friendly. If you're trading vertical spreads profitably and want to understand why, this book is your next step.

What's Covered

Section 1: The Basics — Call/put definitions, expiration, exercise, fundamental parity relationships

Section 2: Pricing Theory — Black-Scholes model derivation, risk-neutral valuation, assumptions and limitations

Section 3: Greek Letters — Delta, gamma, theta, vega, rho: deep explanation of each

Section 4: Volatility Concepts — Historical volatility, implied volatility, volatility skew, term structure

Section 5: Trading Strategies — Vertical spreads, calendar spreads, butterflies, iron condors, straddles, strangles

Section 6: Risk Considerations — Position risk metrics, volatility-based hedging, gamma-vega relationships

Section 7: Applications — Market-making, arbitrage, volatility trading

Who Should Read

Strong fit:

• Intermediate options traders (3+ years trading)
• Professional options traders
• Students pursuing options trading roles
• CFA candidates studying derivatives
• Market makers or aspiring market makers
• Anyone profitable with basic options ready to go deeper

Not for:

• Beginners (buy an intro book first)
• Buy-and-hold stock investors
• Day traders not using options
• Readers wanting quick tactics

What the Book Does Well

Technical depth without becoming impenetrable: Natenberg explains Black-Scholes from first principles, not just as formula. Readers understand WHY the model assumes what it does.

Real market-maker perspective: Natenberg ran options market-making at CBOE. Book includes practical examples from actual trading.

Organized by concept, not tactic: Rather than "here are 100 trade ideas," the book teaches principles. Readers develop their own strategy.

Updates 2nd edition: Updated examples, electronic trading considerations, volatility product evolution.

What Requires Effort

• Black-Scholes derivation assumes basic calculus literacy
• Some chapters require re-reading
• Not a chronological narrative — more reference
• No specific "buy X at Y" guidance
• Assumes broker platform familiarity

Compared to Other Options Books

Book	Complexity	Focus	Best For
Natenberg	High	Pricing theory	Serious options students
McMillan's Options	Medium-high	Strategy	Options strategy builders
Sinclair's Volatility Trading	Very high	Volatility	Professional-level
Cohen's Bible of Options Strategies	Medium	Cookbook	Strategy selectors
Hull's Options Futures	Very high	Academic	CFA candidates

Natenberg sits at the serious-practical intersection.

Pros and Cons

Pros: Industry-standard options reference, explains Black-Scholes from first principles, former CBOE market maker credibility, 500+ pages of depth, 2nd edition updates, multiple-read value, career-foundational for options traders

Cons: Requires existing options familiarity, technical depth can overwhelm beginners, dense prose, no specific profit guarantees, CBOE-centric perspective, 500 pages is a commitment

FAQ

Is this a day trading book? No, it's an options pricing/strategy book.

Do I need math background? Basic calculus familiarity helps. Basic algebra and statistics required.

How long to read? 40-60 hours active reading.

After this, what should I read? Sinclair's Volatility Trading, Derman's My Life as a Quant (industry context).

Is it updated for 0DTE options? 2nd edition doesn't address 0DTE explicitly (published 2015 before 0DTE explosion). Principles still apply.

Why "2nd Ed"? Second major edition published 2015. Natenberg has not published 3rd edition yet.

Bottom Line

Option Volatility and Pricing is the options trading bible. For any trader moving past basic calls and puts into serious options work, this is mandatory reading. 500 pages of depth. Career-foundational.

Our rating: 4.8/5 — Docked for steep learning curve and absence of recent options-product coverage (0DTE). Within serious options trading category, essential.