New to Options - A Few Questions

E

eightythree

I just started my options trading journey and I'm looking for a little guidance. I understand the very basics of options trading and and currently have a TD Ameritrade account, so I have access too the ThinkorSwim charting software.

Right now I am reading Technical Analysis of the Financial Markets to help with my chart analysis. As I read more and more it's definitely feels a little overwhelming.

My questions :

1. What should I focus on learning when it comes to basic chart analysis (IE trendlines, RSI, MACD, etc. etc.)

2. When it comes to structuring positions, are there any that a newbies should learn before any others? A friend of mine who trades suggested beginning with bull put spreads/ bear call spreads.

3. Are there any "must-read" books or online resources I should be looking at?

Thank you in advance for questions, and I look forward to being in the community!
 
1.) I think you should compare the commisions, because last time I checked it, TDAmeritrade was very expensive compared to IB.

2.) The more you play scenarios using an options calculator, the more experience and a "feeling" for options trading you will gain.

3.) But: after all options are just derivatives of an underlying stock or index. So, in the end you must develop good skills in predicting the correct direction of the underlying...
Otherwise options are very risky, but OTOH very rewarding if one is in the right direction.

My tip: buy some MSFT October Puts, MS has to fall because of the Win8-fiasco... :-)
 
Quote from eightythree:

I just started my options trading journey and I'm looking for a little guidance. I understand the very basics of options trading and and currently have a TD Ameritrade account, so I have access too the ThinkorSwim charting software.

Right now I am reading Technical Analysis of the Financial Markets to help with my chart analysis. As I read more and more it's definitely feels a little overwhelming.

My questions :

1. What should I focus on learning when it comes to basic chart analysis (IE trendlines, RSI, MACD, etc. etc.)

2. When it comes to structuring positions, are there any that a newbies should learn before any others? A friend of mine who trades suggested beginning with bull put spreads/ bear call spreads.

3. Are there any "must-read" books or online resources I should be looking at?

Thank you in advance for questions, and I look forward to being in the community!
More...

In my opinion, technical analysis/charting has few benefits to options trading, unless you have some sort of directional edge.

Before you start structuring trades, read "Options, Futures, and other Derivatives" by John Hull, and do all the math problems. I would also suggest Euan Sinclair's books. Good luck.
 
Quote from Doobs789:

In my opinion, technical analysis/charting has few benefits to options trading, unless you have some sort of directional edge.

Before you start structuring trades, read "Options, Futures, and other Derivatives" by John Hull, and do all the math problems. I would also suggest Euan Sinclair's books. Good luck.
More...

Could you elaborate on this a little more? To my understanding you are using technical analysis to predict future moves and you trade based on that. If you aren't using TA to figure out when to enter/exit trades then wha so you use?

I will add that book to the read list.
 
+1 on Sinclair's books, Options Trading and Volatility Trading. I suggest McMillan's Options as a Strategic Investment as being a great place to get started with your studies. He goes in exhaustive detail through the different types of spread positions and assumes no prior knowledge. There is also very little math in the book which can be a bonus when you are just beginning. When you have some experience trading, highly recommend Cottle's Options Trading: The Hidden Reality.
 
Quote from eightythree:

Could you elaborate on this a little more? To my understanding you are using technical analysis to predict future moves and you trade based on that. If you aren't using TA to figure out when to enter/exit trades then wha so you use?

I will add that book to the read list.
More...

I was more referring to the use of technical analysis as the basis for finding trades, trades with edge. The price of an option is influenced by more than just the underlying price (volatility, time, etc.), as opposed to a stock or future. While charts/TA may help you pick direction for a delta bet, it is not really how option traders find trades.

I do agree that once you have a potential trade, it is important to calculate the range/distribution of the underlying so will know what you stand to gain/lose at given prices.
 
Quote from Doobs789:

I was more referring to the use of technical analysis as the basis for finding trades, trades with edge. The price of an option is influenced by more than just the underlying price (volatility, time, etc.), as opposed to a stock or future. While charts/TA may help you pick direction for a delta bet, it is not really how option traders find trades.

I do agree that once you have a potential trade, it is important to calculate the range/distribution of the underlying so will know what you stand to gain/lose at given prices.
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Thanks for clarifying, again I'm super new to this so I appreciate you taking the time to reply.

When you are talking about the price of the option based on more then the underlying you are referring to the greeks correct?
 
Hi, I'm just starting to learn options as well. It seems I have a lot of reading to do before executing an actual trade.

Do you guys think a $30k account is sufficient enough to begin with?
 
Quote from eightythree:

I just started my options trading journey and I'm looking for a little guidance.
More...

Here's some advice.
1. Ask to see someone's trade record before taking their advice with anything less than a grain of salt.
2. Don't assume that we're all professional traders.
3. Pick one or two mentors to learn from instead of getting free advice from such a diverse crowd. Even if we were all successful, we're just coming from too many different places and strategies.
 
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