how to know when you're ready

M

mayhem28

So I've been sim trading for a while and have had decent success, not new to trading, but options were pretty foreign to me until I started learning about them seriously since late last year, but I think I have a pretty good handle of at least the basics. For some reason tho, due to the involved nature of options (greeks, imp vol, skew, etc.) I think no matter how much I know or think I know, I'm still missing something.. at least with stocks.. it's price you need to worry about, with options, price is just a small part of it.. and while I know even the pros are still learning stuff, I still haven't considered everything important and would miss something obvious that would cost me money when it shouldn't.

How does one know when they should put on their first trade, and what would be that ideal first trade? OTM credit spread? Collar? Debit Spread? High Delta long call/put? What is the safest way to get your feet wet in the real world? I think I should be ok with cutting off losses before they get out of hand and not taking profits too soon.. but still a bit wary in options world..

Also.. I'm trading strickly off weekly charts now.. and think they are suited best for options traders.. so exp months are usually 2/3 months out.

One last thing.. I've gotton a ton of information from websites and forums and blogs (like Mark's blog) and been thinking about buying a good options book to take with me on holidays soon.. already know about the macmillan one, but am leaning towards options for rookies. Previewed it on google books and I like the writing style.. decently priced too. Got tons of trading and trading psychology books but none on options. Prolly should get a couple its gonna be a long trip..

Cheers!
 
IMO options are the single hardest instrument for a retail trader to do anything worthwhile with. The reason is simply the difficulties inherent in writing naked options plus the typically large bid/ask gap. Because of these difficulties, options are inherently overpriced. That means that any strategy which trades options from the long side is facing a massive hurdle. But the average retail trader can't really safely trade any position that's net short contracts because of the unlimited risk.

A strange game - the only winning move is not to play.
 
I highly recommend both of those books. You have selected probably the two best books out there to learn from.

You won't really learn trading until you do it. Put on a tiny trade. So tiny that it's embarrassing. That is the way to start.
 
Quote from drcha:

I highly recommend both of those books. You have selected probably the two best books out there to learn from.

You won't really learn trading until you do it. Put on a tiny trade. So tiny that it's embarrassing. That is the way to start.
More...

Thanks drcha, I am still learning (obviously) and granted I have a long way to go, but I believe that at some point someone must find the courage to dip their feet into the water. When I first started trading stocks I did the exact same thing.. start with embarrasingly small position size like 5, 10, 15 shares Ridiculous but at the time I had to somehow muster up the courage From a psychological perspective it worked.
 
Quote from The Big D:

IMO options are the single hardest instrument for a retail trader to do anything worthwhile with. The reason is simply the difficulties inherent in writing naked options plus the typically large bid/ask gap. Because of these difficulties, options are inherently overpriced. That means that any strategy which trades options from the long side is facing a massive hurdle. But the average retail trader can't really safely trade any position that's net short contracts because of the unlimited risk.

A strange game - the only winning move is not to play.
More...

Thanks for the input. The bid/ask can be a nightmare obviously with spreads and the like and your thoughts on options for the retail trader are highly justified.. recently read "Come into my trading room" by Elder and he doesn't seem to look on options trading so fondly. Even Van tharp I believe got blown out trading options (fact?)
Nevertheless I believe options used <i>with</i> stock can be a powerful combination!
 
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