Beginner

I

IIAce

Hello,
I know nothing about options, but I wanna learn and trade options eventually. I ordered "Options as a Strategic Investment" yesterday and waiting for it to arrive. Any other books you think a beginner needs to read? How much money do you think I'll need to start? I know with stocks I can start without much, but I won't make much either. Can I also start with a little bit of money in options?

Any tips/advice would be greatly appreciated.

Thanks.
 
u shud start tradin' the common not derivatives of the contract if u a beginner...options are unforgivin' in many ways and the odds are stuck against u since u open u pos...once u able to find a substantial edge in stocks then u can diversify and use options; even at this stage i wud not recommend 'em as main strategy...but hell, i know am not gonna stop u from tryin' to make a livin' flippin' premiums so carry on and see for uself.
 
IIACE,

If you would like some good information to get you started in options, visit:

Chicago Board Option Exchange: http://www.cboe.com/LearnCenter/default.aspx

I've also listed some books on my website at:
http://www.options-trading-resource...ding-Books.html

Regards,
Steve
http://www.options-trading-resources.com/EliteTrSig

Option trading information and tools the pros wish they had! A former Chicago Mercantile Exchange employee reviews stock option trading software, books, and web sites and online income opportunity.
 
Random thoughts:

1. Only use money you can afford to lose.

2. Try to find a website where you can paper trade until you feel confident to trade real money (see #1).

3. Theory is fine, but the market finally determines the prices.

4. You can lose 100% of the money you spend on buying premiums (see #1).

5. Selling covered calls might be a good way to start, but stocks can go to $0 (e.g. Enron).

6. Speaking from experience, learn some Technical Analysis. TA won't guarantee your results, but it should help from going against a trend.

7. See #1.
 
Eliot,
These are all very good thoughts. I couldn't agree with you more about learning Technical Analysis. Learning to read charts is a big asset. I am a big fan of Tom O'Brien's Timing the Trade:

http://www.options-trading-resources.com/stock-market-symbols-chart.html

While you are right about Enron as an example of stocks that can go to zero, I personally don't think it should deter anybody form writing covered calls. In fact, somebody that had written covered calls on Enron would have lost less money than somebody that owned the stock naked.

Even if you buy a stock and ride it all the way to zero, in all probability, you will have many opportunities to write calls on the way down and reduce or even eliminate your cost basis. I bought a stock that lost 30% the day after I bought it. I still own it and write calls against it every month. I could sell the stock today at a profit, even though it is still 20% below where I bought it. Why sell it, This time next year I'll own it for free! (and still write premium every month)!

To your point, I believe Enron is more of an argument for diversification. Seldom do quality companies completely implode as Enron did. But, if you are unlucky enough to get hit by such an unusual event, your diversication will keep you from getting wiped out.

After all is said and done, refer back to Eliot's Rule #1!

Regards,
Steve
http://www.options-trading-resources.com/EliteTrSig

Option trading information and tools the pros wish they had! A former Chicago Mercantile Exchange employee reviews stock option trading software, books, and web sites and online income opportunity.
 
Steve, I agree with you.

The point about Enron and covered calls is that brokers tell you that it is the safest and most conservative strategy. As you said, it's still slightly better than naked stocks. In fact I tried to argue this point with a Schwab rep to no avail. I told him they should put naked long stocks at the same level as naked short puts.

Then I moved to ThinkOrSwim for option trading, and moved my brokerage account to Fidelity. They have the same phony option levels, but at least they helped me fill out the application to get level 3.
 
I heard that I am required to have some experience before they will even allow me to trade options. Is that true? It would suck if I'm not even allowed to trade options.
 
It depends on the broker where they let you start. Schwab and Fidelity will start you at level 1, which is selling covered calls. I don't even know what level they put buying puts and calls at, maybe level 2. Fidelity has 5 levels and IIRC Schwab has 4.

Some brokers like ThinkOrSwin.com let you trade anything, but you need a minimum amount of experience to open an options account with them.
 
Interactive Brokers also requires some experience. That being said, there is no way for them to "investigate" your claims when you fill out your application. There is no "test". You will be taken at your word. However, they will use your application as evidence should you blow out your account and try to sue them for letting you trade options.

Regards,
Steve
http://www.options-trading-resources.com/EliteTrSig

Option trading information and tools the pros wish they had! A former Chicago Mercantile Exchange employee reviews stock option trading software, books, and web sites and online income opportunity.
 
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