Please recommend good books for option trading?

M

mizhael

Hi all,

Please recommend good books for option trading. At this moment, I am a retail/individual level option trader. I am looking for good practical option trading books for my level.

I have read about those option combinations, such as straddle, etc. I am not sure if they are really useful for retail-level traders?

One of my current problem is: I don't know when shall I cut loss or reap profit. It's a bit different than plain stock trading.

For example, yesterday my option went up 100% in one day, after I entering into the market. But I thought it should theoretically be up 200% or more, based on my beliefs, so I didn't reap profit and get out. Instead, I waited until today. Then today my option went down and is now under water. I am not sure if I should cut loss and leave the market.

I really need to develop a good trading strategy and trading style. Any help?

Thanks a lot!
 
No book is gonna teach you to trade profitably, it's up to you to develop a trading method that works.
 
If your retail level, youre gonna be dealing with relatively high Commissions so longer term strategies are probably better.

A coupel of good books though

Option Volatility and PRicing (natenburg)
The bible of option Strategies (Cohen)
 
Best Book to learn options I think is McMillan's "Options as a Strategic Investment". Still relevant 20 yrs after I first read it and course book for NY Institute of Finance reading material.
 
Sheldon Natenberg's: Option Volatility & Pricing.

The top firms require their traders to read this but that is not the reason to read it.

This is a must know for options trading period.
 
Quote from mizhael:

Hi all,

Please recommend good books for option trading.
More...

For people first getting started with options, I recommend (with a bias because I wrote it) The Rookie's Guide to Options.

It covers the basics of what an option is and how it works. I discuss - in detail - six different option strategies (http://blog.mdwoptions.com/options_for_rookies/2008/06/recommended-opt.html).

There is a full discussion about managing risk and its importance for long-term success.

Primarily for rookies, there are also a few advanced topics scattereed throughout the book.

You can get a free sampler version - with a tidbit from each chapter - here: http://www.mdwoptions.com/freebook.pdf

Mark
 
Thanks.

Well I am not first timer with options. I know the math behind options, since I am a math guy. However, those hedging stuff are for institutional investors and banks. I don't see how those math and concepts can be used in retail/individual trading. For example, we all know BS formula, but we need volatility estimate in order to us the BS formula. The problem is that for a retail/individual trader, the vol is mostly a very wide guess.

And once entered into an option trade, deciding when to cut loss and when to reap profit is unknown for retail investor, because the goals of a retail investor and a bank on option trading are very different. Correct me if I am wrong: I think the Nateberg book is not suitable for retail investor?
 
Quote from mizhael:

Thanks.

Well I am not first timer with options. I know the math behind options, since I am a math guy. However, those hedging stuff are for institutional investors and banks. I don't see how those math and concepts can be used in retail/individual trading. For example, we all know BS formula, but we need volatility estimate in order to us the BS formula. The problem is that for a retail/individual trader, the vol is mostly a very wide guess.

And once entered into an option trade, deciding when to cut loss and when to reap profit is unknown for retail investor, because the goals of a retail investor and a bank on option trading are very different. Correct me if I am wrong: I think the Nateberg book is not suitable for retail investor?
More...

Wrong wrong wrong and wrong. You have many misconceptions.

First of all, you have to be a little more flexible - a lot more flexible actually - in your understanding of how to use BS. It works two ways - with a price you can get the implied volatility, and with a volatility you can get a price. So let's say you have two adjacent strikes. Using BS you get an IV for one strike, then using that volatility you see how "overpriced" or "underpriced" the adjacent strike is. If you look at that for all strikes, you see the skew. Once you know the skew of a contract intimately, there are many ways to play it.

I ain't no institution and I've been using pricing models extensively for 25 years. Without them - and without understanding the concepts in Natenberg - I think a retail trader will have a tough time being successful.
 
Quote from dmo:

Wrong wrong wrong and wrong. You have many misconceptions.

First of all, you have to be a little more flexible - a lot more flexible actually - in your understanding of how to use BS. It works two ways - with a price you can get the implied volatility, and with a volatility you can get a price. So let's say you have two adjacent strikes. Using BS you get an IV for one strike, then using that volatility you see how "overpriced" or "underpriced" the adjacent strike is. If you look at that for all strikes, you see the skew. Once you know the skew of a contract intimately, there are many ways to play it.

I ain't no institution and I've been using pricing models extensively for 25 years. Without them - and without understanding the concepts in Natenberg - I think a retail trader will have a tough time being successful.
More...

Wow, I admit I am not flexible at this moment because I only know math without knowing how to use them for retail trading.

Are you saying that you have been successfully using those math at the retail level and still constantly found arbitrage opportunity and consistently making superior returns?

Could you please shed some lights on me about how to decide the timing of entering and exiting an option trade?
 
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