Hello newbie here and would like some advise please =)I have a MSc in Theoretical Physics and have been reading up materials on Option Pricing Theory (i.e. B-S equations...etc)But having said that my aim is to get into Quant trading and I see a lot of posting on this forum regarding cointegration, time series analysis, statistical arbitrage and high frequency trading...etcPlease correct me if I am wrong but as I am getting the impression that one can start doing algorithmic trading with out any knowledge of option pricing theory; which lead me to wonder how much effort should I be putting into learning option pricing.I would be grateful if anyone can advise me on this matter as I believe there are many very experienced quants and quant traders out there that would be able to point me to the right direction.I look forward to be hearing form you all.Many thanksregards,Ed

I guess the question should be ... do you plan on trading options?If the answer is no then it's something you can look into at a later date.

Many thanks for the prompt response Marine =)I guess this makes sense as it is mainly strategy based and a "knowledge on demand" type of situation.Will appreciate it if you or any experienced quant traders on this forum can elaborate this a little more?Many thanks =)regards,Ed

In my limited experience I've never had a use for it. But like most things it doesn't hurt to know.

Thanks for the prompt response MC81 =)I guess it wouldnt hurt to know but just the matter of TIME really =/ so I guess like Marine has suggested; I might just spend my time looking into things like cointegration and time series analysis for now and maybe leave Option Pricing for a later date =)Would like to hear any other practitioner on this forum that might have 2nd opinion on this matter =)Many thanks.regards,Ed

I might be wayyyy off, but if I am trading in any way (random, quant, tech), I will have to be mindfull of no arb conditions to avoid being hammered (for free ) by the competition. Also, no arb is a principle dominatnt in many trading situations.This seems to necessitate a good grasp of the most frequently traded instruments (since no-arb usually necessitates high frequency).It is also my limited understanding that no matter what trading you do, you might want to limit exposure through derivatives and hence might need to know at least a bit about it.Cheers,Alk

Thank you for your advice Alkmene =)I guess it does make sense to use derivatives for hedging your positions when trading, maybe even for high-frequency or stat arb trading...?Would like to hear more regarding as I get the impression hedging might not be a common practice for stat arb traders.Perhaps practitioners on this forum can expand this a little more, Many thanks =)regards,Ed

I guess I am trying to say (clumsily, perhaps) that you need to be aware of other instruments and their pricing. It's not necessarely YOUR hedging; you should consider MY position as well.Say you offer my a forward deal OTC where the underlying is currently at x and the rf interest rate is r, then you will need to be aware of the synthetic positions out there if there is a functioning options market - otherwise I just buy all you have if you are offering the forward at <<100exp(rT); ceteris paribus, MY hedge would be to buy a put and sell a call and arbitrage you ... no matter what your quant/strat arb model is saying, you are leaking money in the long run!silly example but can't be bothered making up a proper one.Alk

Hey Alkmene, thanks again =)Silly example that might be but I guess insightful and straight to the point. I will have to do a lot more reading on Stat Arb (currently reading up on back testing) but would like to hear more example regarding how option pricing can be useful in High frequency trading =)Many thanks guys!Regards,Ed