Fundamentals of the Options Market, by Michale Williams is one of my favorite entry level books. It covers the basics quickly: what is a Call and what is a Put--Long, Short, ITM, ATM, and OTM. So, if you are reading this and have no clue what any of those things are, buy this book, it's a very good resource to have around, especially if you are wanting to get serious about options.
This book also delves into Synthetics in detail, and goes over the building blocks for them. Synthetics let you construct Profit and Loss profiles that are similar to each other, but may reduce risk, or less capital intensive. I'll deal with those more later.
The book outlines a huge number of options strategies for each particular market situation. Including some rather advanced strategies, such as back spreads and front spreads. It also covers market basics, and how exactly that little gnome changes those ticker numbers so fast.
Options Markets also introduces us to Position Trading, another important concept that I will address later. But, very quickly, position trading allows you to identify where your risk is coming from, and how to hedge against it. Beginners and intermediates, this is a good book, and a resource to hang on to.
Showing posts with label Options Books. Show all posts
Showing posts with label Options Books. Show all posts
Tuesday, August 26, 2008
Tuesday, August 19, 2008
Options as a Strategic Investment
I finished Options as a Strategic Investment, by McMillan, back in June of this year. I have to recommend this book very highly. However, this book is geared more towards the Intermediate/Advanced options trader. So, unless you have your fundamentals down, hold off on reading this book, but if you are there, or are just curious, it is an excellent book.
I'm not an advanced option trader yet (hoping to get there someday), but I was able to glean a lot of good ideas from this. For example, yesterday I mentioned buying "low and selling--volatility that is." This is an idea direct from McMillan's book.
Volatility will increase the price of an option. There are a myriad of strategies that would allow me to do this, and the book goes into detail about advanced strategies such as back spreads and front spreads. And when I get to that trading level, I will be implementing these ideas.
But again, the idea of volatility can apply to selling covered calls. We buy the underlying security 100 shares of the stock, and the sell 1 OTM contract. The trick is, find a stock that is volatile but currently undervalued, and then sell the option which is overvalued due to the high volatility. This takes some homework, but that's the name of the game.
I'm not an advanced option trader yet (hoping to get there someday), but I was able to glean a lot of good ideas from this. For example, yesterday I mentioned buying "low and selling--volatility that is." This is an idea direct from McMillan's book.
Volatility will increase the price of an option. There are a myriad of strategies that would allow me to do this, and the book goes into detail about advanced strategies such as back spreads and front spreads. And when I get to that trading level, I will be implementing these ideas.
But again, the idea of volatility can apply to selling covered calls. We buy the underlying security 100 shares of the stock, and the sell 1 OTM contract. The trick is, find a stock that is volatile but currently undervalued, and then sell the option which is overvalued due to the high volatility. This takes some homework, but that's the name of the game.
Wednesday, July 30, 2008
Options 101
Options are extremely leveraged, and require very little upfront capital; but, there is a lot to learn. With Guy's book for beginners, I was able to get a full grasp of what options really do. Literally the right to buy and sell stock, which you can also buy and sell, and any combination thereof. Example: you can buy the right to buy a stock, sell the right to buy a stock, or sell the right to sell a stock. Once I got my mind around that, I was excited to finally figure out what the hell was going on.
All of those calls and puts, dates, and small change numbers made sense. No longer was it just $0.55 for December, but an opportunity to buy the stock at XX price for $0.55 x (Number of Contracts) X (100). $0.55 went from pocket change to $55.00. I guess the light bulb was on. (Reader note: this is a dimmer switch bulb).
Guy's book was easy to read, and he laid out basic strategies. I perused the book, and decided that a Vertical Spread, or a Bull Spread strategy was the one for me. The next day, I applied for options permission with E*Trade, for level 3. A day later they came back to me, with authorization for level 1.
I shook my head. Apparently I didn't have enough experience as a trader to qualify for anything higher. My next big question was, what was a level 1 mages abilities? Covered Calls, Buy-Writes, and Roll ups/downs.
To be honest, after having just read the book with about 40 different options strategies laid out, I couldn't tell you what any of those three things were. I made up my mind, and decided, rather than give up on options, I would learn what the hell these things were, and how to profit with them.
All of those calls and puts, dates, and small change numbers made sense. No longer was it just $0.55 for December, but an opportunity to buy the stock at XX price for $0.55 x (Number of Contracts) X (100). $0.55 went from pocket change to $55.00. I guess the light bulb was on. (Reader note: this is a dimmer switch bulb).
Guy's book was easy to read, and he laid out basic strategies. I perused the book, and decided that a Vertical Spread, or a Bull Spread strategy was the one for me. The next day, I applied for options permission with E*Trade, for level 3. A day later they came back to me, with authorization for level 1.
I shook my head. Apparently I didn't have enough experience as a trader to qualify for anything higher. My next big question was, what was a level 1 mages abilities? Covered Calls, Buy-Writes, and Roll ups/downs.
To be honest, after having just read the book with about 40 different options strategies laid out, I couldn't tell you what any of those three things were. I made up my mind, and decided, rather than give up on options, I would learn what the hell these things were, and how to profit with them.
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