Rookie needs help decoding options and where to begin?

F

freeManSon

Greetings,
My first post and step to learn everything there is about options.
Have been trading for a while mainly futures and forex and I am very happy to find this place.

I thought I knew it all and then started to look into options and my self-esteem dropped to bottom low. Its a complex topic but I am trying slowly to decode what everything means and mechanics of options.

I have start looking at OI - Open interest and Volume. Is it possible to get a "clue" how price will move the next day by studying just OI and Volume for C and P after close of trading-day?? Or am I thinking this wrong?
Its hard in the beginning knowing what and not to look for.
 
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Before you trade big (I know, to late), spend months (with an "s") on this website...At the bottom from A to Z. You can't even begin unless you know some of the language.

https://www.investopedia.com/

PS You can't be called an idiot, unless you have at least "some" knowledge...
 
My advice to options beginners:

1) Start by studying the ins and outs of LongCall option: try to figure out the formulas for calculating CostBase, MaxLoss, MaxProfit, BreakEvenPoint (and the PercentDistance to it) when the option expires on the expiration date.
Use such an important aiding tool for simulating and showing the Profit/Loss chart: https://optioncreator.com/stnqdfb
This same scheme you will later need with any and all other options constructs (strategies), incl. multi-leg options strategies.

2) Study the options chains (strike tables for all the expiration dates), like here.

3) Then study also the ShortCall :)

4) As next study CoveredCall, ie. LongStock + ShortCall.

- You have to make notes of all the stuff you learned in a file for your own reference,
b/c the topic of options is complicated and broad; one simply needs to keep notes.
Also keep bookmarks of links to important articles and postings for quickly finding the stuff again.

- You should aim to specialize on a subset of all the many possible options strategies,
b/c one can't learn or know all of them; one simply needs to specialize on a few.
Some hints: CoveredCall (CC), CashSecuredPut (CSP), LongPut (LP), LongCall (LC), Collar, LongStraddle, LongStrangle, BackSpread, Ladder, BearPutSpread, ...

- For your own safety, as a beginner you better should trade in a Cash Account only (not Margin Account).
Ask your broker for a Cash Acct with Level-2 options permission.

See also these of my related recent postings:
https://www.elitetrader.com/et/thre...advanced-beginners.378113/page-2#post-5920266
...
 
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Take the actual IVs and build indexes of them. Can use cap weightings, sector comp, related names, etc.

You can build an index by aggregating normalized intra-day IV. Returns data can also be indexed.
 
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Real Money said:
Take the actual IVs and build indexes of them. Can use cap weightings, sector comp, related names, etc.

You can build an index by aggregating normalized intra-day IV. Returns data can also be indexed.
More...
How do you make use of it?
Can you post an example chart of such an index covering say 2+ weeks ?
 
freeManSon said:
Greetings,
My first post and step to learn everything there is about options.
Have been trading for a while mainly futures and forex and I am very happy to find this place.

I thought I knew it all and then started to look into options and my self-esteem dropped to bottom low. Its a complex topic but I am trying slowly to decode what everything means and mechanics of options.

I have start looking at OI - Open interest and Volume. Is it possible to get a "clue" how price will move the next day by studying just OI and Volume for C and P after close of trading-day?? Or am I thinking this wrong?
Its hard in the beginning knowing what and not to look for.
More...
upload_2024-2-5_7-49-42.png


But seriously though start with learning all you can stand about volatility.
 
Quanto said:
My advice to options beginners:

1) Start by studying the ins and outs of LongCall option: try to figure out the formulas for calculating CostBase, MaxLoss, MaxProfit, BreakEvenPoint (and the PercentDistance to it) when the option expires on the expiration date.
Use such an important aiding tool for simulating and showing the Profit/Loss chart: https://optioncreator.com/stnqdfb
This same scheme you will later need with any and all other options constructs (strategies), incl. multi-leg options strategies.

2) Study the options chains (strike tables for all the expiration dates), like here.

3) Then study also the ShortCall :)

4) As next study CoveredCall, ie. LongStock + ShortCall.

- You have to make notes of all the stuff you learned in a file for your own reference,
b/c the topic of options is complicated and broad; one simply needs to keep notes.
Also keep bookmarks of links to important articles and postings for quickly finding the stuff again.

- You should aim to specialize on a subset of all the many possible options strategies,
b/c one can't learn or know all of them; one simply needs to specialize on a few.
Some hints: CoveredCall (CC), CashSecuredPut (CSP), LongPut (LP), LongCall (LC), Collar, LongStraddle, LongStrangle, BackSpread, Ladder, BearPutSpread, ...

- For your own safety, as a beginner you better should trade in a Cash Account only (not Margin Account).
Ask your broker for a Cash Acct with Level-2 options permission.

See also these of my related recent postings:
https://www.elitetrader.com/et/thre...advanced-beginners.378113/page-2#post-5920266
...
More...
I appreciate greatly for you reaching out and taking time to reply back. I thought as a beginner there was only buying puts and calls =) Many new abbreviations to understand but I am getting there ....slowly.
Now where can I get my hands on historical data? Need to do some programming (Python) and models to test few things.
And I will not do a single trade before I understand - everything.
Once again, a big thank you!
 
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