Educating myself on trading options

B

BTStrader

I currently trade stocks, but would like to start getting into options sometime in the future. I have tried a few options in the past (buying calls, selling covered calls, etc.), with mostly negative results. Three questions:

1. Is there a good website or book that does a good job of teaching the strategies of trading options, from entry to exit?

2. How does a person find opportunities? Do you focus on the underlying stock, or do you look for undervalued/overvalued options?

3. How does money management differ between trading options and stocks? Also, do you need a better W:L ratio?

Any help is appreciated.

Brian
 
The most popular beginners book on options is "Options as Strategic Investment" by McMillan.

Haven't read it myself but have read his other book "McMillan on Options" which is quite readable and covers various strategies.

However, if you want to ramp-up your fundamental understanding, as mentioned above, suggest you read and re-read: "Option Volatility & Pricing" by Sheldon Natenburg.

It's a little dated in both content and format but if you can master it you are already well away.

After that, something else to tackle is "Coulda Woulda Shoulda" by Charles Cottle. Here: http://www.riskdoctor.com/books.html

It's a free PDF download. Also you can try out his new updated book.

MoMoney.


Quote from BTStrader:

I currently trade stocks, but would like to start getting into options sometime in the future. I have tried a few options in the past (buying calls, selling covered calls, etc.), with mostly negative results. Three questions:

1. Is there a good website or book that does a good job of teaching the strategies of trading options, from entry to exit?

2. How does a person find opportunities? Do you focus on the underlying stock, or do you look for undervalued/overvalued options?

3. How does money management differ between trading options and stocks? Also, do you need a better W:L ratio?

Any help is appreciated.

Brian
More...
 
Pretty new to options trading myself but, I have been studying since, April 2005 intensively on trading stocks, mutual funds, ETFs and options especially.
Don't consider myself an expert although, I have had some limited success. Each stock is different so, it is hard to quantify how one would trade each option.
I look at the underlying stock and try to analyze the stock charts to determine the direction as I am a directional options trader. Other traders use strangles, collars, etc. Tried a strangle once, did not work out but, just lost a small amount.
I think the key is your win/loss ratio. At once time, I had a 2.71 to 1 win/loss when I had just 13 trades. My last two trades were horrendous resulting in huge loss and I allowed the trades to go out of control so, I now have a win/loss ratio of just 1.57 to 1.00. Have had only 24 trades in 2005, 14 winners and 10 losers and slightly positive. Actually, ahead $5700.00 for 2005 which is a disappointment as with less mistakes----I could be doing better!!!
Just placed my first trade in 2006 on 5 contracts of DLP QE (DLP) and in at $2.90.
I suggest reading George Fontanills book, The Options Course, 2nd Edition which I think is a good book for beginners in that options is explained in straight forward easy to understand English. Other options books are harder to understand for beginners.
Also, study technical analysis. I believe one has be be atleast, somewhat proficient interpreting stock charts to figure out direction if you decide to trade that way or even consolidation phases which I believe is more suited to those who play straddles. Paper trade when you feel you know enough and see how you do. Keep trading records or a journal like I do----you will know your strengths and weaknesses.
Good luck!!!
 
Quote from BTStrader:

I currently trade stocks, but would like to start getting into options sometime in the future. I have tried a few options in the past (buying calls, selling covered calls, etc.), with mostly negative results.
More...

Are you consistently profitable trading stocks?

If not, then don't touch options until you are, because they'll simply accelerate your losses. I have never known, heard about, or read about a profitable retail options trader who was not first an excellent and experienced equities trader.

If you ARE profitable, then why do you want to take on the extra hurdles and risks of options? If you can successfully trade the underlying, in my experience, you are better just trading the stock and avoiding the additional risks inherent in the spreads and decay.
 
Quote from TruthTeller:

Are you consistently profitable trading stocks?

If not, then don't touch options until you are, because they'll simply accelerate your losses. I have never known, heard about, or read about a profitable retail options trader who was not first an excellent and experienced equities trader.

If you ARE profitable, then why do you want to take on the extra hurdles and risks of options? If you can successfully trade the underlying, in my experience, you are better just trading the stock and avoiding the additional risks inherent in the spreads and decay.
More...

There's a bit of a contradiction in your post, first you say that only successful stock traders should trade options yet then you say that successful stock traders should stay away from options anyway. So, by your reasoning, no one would ever become an option trader as you need to be a successful stock trader first and once you are you should stay in stocks.
 
I found options less risky than stocks. The only issue is that you need proper education.

You should go to some free seminars to get a feeling of what it is and how it works. TOS provide free training on the basics, for example.

This way you decide by yourself if you like it or not.
 
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