Starting to learn options (where to start)

Discussion in 'Options' started by tradingpoker, Dec 6, 2019.

  1. So much information out there, in one way it's great, but in another way it can be very overwhelming. Not to mention all the get rich quick schemes as well.

    So I guess I am being a bit lazy here and just want to cut out all the BS and find out where the best place to start learning how options work. The different variation, how to trade them etc etc.

    Books/websites/coaches etc

    I have started with the below book....



    and hope to move onto this one next ....

     
  2. Fx-Game

    Fx-Game

    Try this:


    It is not for base explanation, but delivers a good methodology which some use:
    Get advantage off the range blue chip stocks tend to.
     
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  3. pipeguy

    pipeguy

    J. Hull - options futures and other derivatives. Excellent introduction, medium-level math calculations if you have economic or math background you will understand material in this book properly
     
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  4. WRT "The Wheel".

    1. Look up the "Wade Cook Rolling Stocks Scam"

    2. Yeah, this strategy works. But it only works in an up, flat, or little bit down market. In a large market drop it will lose money. Is it better than just buying and holding? Maybe, but what happens is people get too used to selling puts and start to use leverage. They get greedy and get away from CSPs and sell too many puts. Then get destroyed by the next big market drop. Happens over and over...
     
  5. guru

    guru

    a) Learning options should take you at least a month. Or two. Or three. Meaning take it slow. Possibly spend some time watching YouTube videos on trading options and digest and compare what you find.

    b) The Wheel strategy described above is logically wrong and the person who came up with it doesn’t understand options. But some people who traded options for 20 years believe it’s a great strategy.
    This simply shows that options strategies can be controversial, misleading, plain wrong, over promising, understood differently by different people, etc.
    But it may be good to learn why The Wheel is “wrong”, so here is brief explanation.
    The Wheel is based on selling naked puts which may result in a stock being assigned to you (sold put may be converted to stock when the option expires), and/or when you own the stock then The Wheel recommends selling calls against the stock owned, using strategy called covered calls. (lookup both “selling naked puts for income” and “selling covered calls” on Google and YouTube).
    The problem here is that the author doesn’t seem to understand that selling covered call is 100% identical to selling naked put at the same strike. Basically if you own a stock that costs $100 then instead of selling covered call at $110 strike, you could sell that stock and then sell naked put at $110 strike. The result will be identical.
    So The Wheel is a misleading name and strategy for something that can be accomplished simply by always selling naked puts, or by always selling covered calls - without a need to distinguish the two and confuse terminology.
    But this may already be too much to digest right now, so come back to this topic after you fully understand covered calls and naked puts.

    c) Selling naked puts and naked or covered calls are very popular, but no one seems to have proven that results can be better than simply owning shares of stock.
    In fact, no one has proven that any mechanical/systematic way of trading options beats owning stock itself, while there are many professionally managed option strategy ETFs and indexes where you can quickly see their performance. In fact, the CBOE exchange maintains performance indexes for many options trading strategies on the SPX index (or SPY stock) and you can see them here:
    http://www.cboe.com/products/strategy-benchmark-indexes
    Keep in mind that exchanges want you to trade options and they make money off of you, so it’s even more surprising that they’d publish results of variety of option strategies and prove that they don’t work!

    However, some people are very capable of using options creatively, so you just need to be able to learn options to the level of distinguishing crap from something that may have actual potential.
     
    Last edited: Dec 6, 2019
  6. ZBZB

    ZBZB

    Do both, be 100% long stocks and sell option spreads on margin. Spreads have a lot less margin requirement so you are paying less interest than naked.


    In between reading options books watch option videos on YouTube. The SMB capital option videos are very good as they stress having a view on the underlying by using something as simple as a moving average.



    Edit: Reinvest the profits from selling options and the dividends into more stocks. You now have the same business model as Berkshire Hathaway: compounding money.
     
    Last edited: Dec 6, 2019
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  7. Great post I must say thank you.

    Of course thank you everyone else as well, any more advice is super welcome.

    I am a pro poker player that is moving over to all of this!
     
  8. the search bar
     
  9. Thank you, very helpful I am sure your other 78 posts must be great posts!
     
    Last edited by a moderator: Dec 6, 2019
    TooEffingOld likes this.
  10. To be accurate I want to add the following points:

    1. Loses money in a down market. Sounds like duh and many would say so would buying and holding. But in a downward market most people using this strategy are constantly selling puts and getting put piece of shit stocks and rev up the strategy because they keep taking losses. Rather than step away from this strategy they just keep selling puts and getting assigned and locking up capital in shit dying stocks and actually end up in a much worse position. Why..because they are too afraid to actually realize it works poorly in this environment and they should look to bearish strats or something less risky. Most never do and lose a lot.

    2. In a strong bull market this strategy sucks. While the markets are screaming higher you are making pussy returns selling OTM puts, never really getting assigned and woefully underperforming Buy and Hold. Most are not smart enough to recognize the raging BULL and since they are collecting premium monthly they think they are trading geniuses while blind monkeys are making money doing nothing. If the market is screaming higher you should be long long long by whatever means, not selling extremely high risk/limited reward puts.

    3. This strategy is best for sideways or slow moving markets. Most investors are bored with these kind of markets and never really maximize the chop to collect premiums, maybe get assigned a few times and get to sell more premium and grow an account while everyone else is getting sideways chopped. You want a boring market to make the most money relative to everyone else but naked option sellers usually leverage up on raging volatile markets which lead to the points I raised in #1 and #2 above.

    4. If you cannot successfully analyze and pick stocks, then you cannot do this strategy. Options are derivatives means their value is derived from a strong knowledge of something other than the options themselves, be it the underlying stock, volatility etc. So if are new to stocks and options you will lose money. Most dont understand that but if you cannot pick the stocks correctly, how can you sell naked puts and take ownership and avoid owning crap.
     
    #10     Dec 6, 2019