Best Way to Learn Options Trading?

[SoReadyToRetire]

Any thoughts on the best way to teach myself how to play with stock options?

Thinking I may like to dabble a little and see if I can get the hang of it, once I have more free time. DH just ordered a CD from some guy we saw on TV that supposedly is a wizard at it.

How did YOU learn?

 

[OldShooter]

... DH just ordered a CD from some guy we saw on TV that supposedly is a wizard at it. ...

Ask yourself this: If this guy is really good at option trading, why is he hustling CDs on the internet?

Said another way, the mere fact that he is selling the CDs tells you that he is a loser. As you will also most certainly be.

 

[Senator]

You can learn from CD, maybe.

I took a few courses from Investools, and Online Trading Academy. There is a lot to the strategy of options, although just trading them is easy.

 

[njhowie]

You learn by losing. It's going to happen. So, before you do anything, you had better be ok with the thought of possibly losing all of your money. If you aren't comfortable with the possibility of losing all of the money you "play" with, then go no further.

Another word of caution. Just the fact that you are talking about "playing" with options says right off the bat that it's probably not something you should be doing. Options are risky. They can be extremely volatile and if you don't have nerves of steel, you are at a big disadvantage.

Learning from a CD that you bought from a late-night infomercial is not going to make you rich. It's certainly making the person you bought it from rich and all he's done is show you some charts with lines drawn on them and how he always makes a profit. Then the camera pans to videos of him on a yacht convincing you that you could have the same.

If you have a few thousand dollars that you can afford to lose gambling, then study from the CDs, follow the instructions, and see what happens.

Another word of caution - read the options application/agreement from your brokerage carefully and don't simply jump to the last page and sign.

Who knows, maybe it will work out. However, it's more likely that it won't.

Just be aware of the risks and what you can afford to lose.

Posts like yours become typical in the final innings of a bull market.

 

[OldShooter]

You learn by losing. It's going to happen. So, before you do anything, you had better be ok with the thought of possibly losing all of your money. If you aren't comfortable with the possibility of losing all of the money you "play" with, then go no further.

Another word of caution. Just the fact that you are talking about "playing" with options says right off the bat that it's probably not something you should be doing. Options are risky. They can be extremely volatile and if you don't have nerves of steel, you are at a big disadvantage.

Learning from a CD that you bought from a late-night infomercial is not going to make you rich. It's certainly making the person you bought it from rich and all he's done is show you some charts with lines drawn on them and how he always makes a profit. Then the camera pans to videos of him on a yacht convincing you that you could have the same.

If you have a few thousand dollars that you can afford to lose gambling, then study from the CDs, follow the instructions, and see what happens.

Another word of caution - read the options application/agreement from your brokerage carefully and don't simply jump to the last page and sign.

Who knows, maybe it will work out. However, it's more likely that it won't.

Just be aware of the risks and what you can afford to lose.

Posts like yours become typical in the final innings of a bull market.

+100

 

[Retiired]

I have been watching videos on the "Tasty Trade" network for years. They are FREE and very comprehensive. If you have a Roku or internet, they have thousands of hours of videos for all different levels or investor. The big difference with them is they are not selling anything and it is free. The founder developed the ThinkOrSwim trading platform and sold it to TD Ameritrade so no need to make any more money, just have fun trading options everyday live on Tasty Trade TV!

https://www.tastytrade.com/tt/learn/

 

[njhowie]

Going All Cash in 401k
I'm at an all-time high in my IRA and would like to sell all the mutual fund shares I own in it and just stay all in cash (left in my Fidelity IRA account, of course) while I decide on a less-agressive strategy and investigate a safer place to put my money.

This would only be temporary. I'd just like to conserve what I have at the moment so I don't take another big dive the next time something crazy happens in the world (like I did last Fall when everything tanked).

Thoughts on this approach? Makes sense, doesn't it?

Friend - options are not for you.

 

[OldShooter]

Friend - options are not for you.

+101

 

[Cichon_007]

ThinkorSwim by TD Ameritrade has “paper trading” accounts iirc. It’s exactly like their real platform except with fake money. That way you can test this guy’s strategy with fake money.

Options can be extremely risky or not. When you Write options you’re the one selling the contract. That’s the lower risk side of the trade. For example- with MSFT trading at $135 you might think you’d buy 100 shares if it drops to $115. Well, someone will pay you about $1 a share today to guarantee to buy MSFT at $115 any time between now and December. If it drops to $50, yep, you’re buying for $115. And therefore the other guys contract he paid $1 per share for would be worth $65.

The person who paid you the $1 a share essentially loses 100% of their investment if the shares are above $115 on the day of expiration. This is just one example of Puts. There’s Calls, then all sorts of crazy names for spreads etc.

Anyway, just paper trade for a while until you understand. They can be a great way to basically create your own dividends or it can be a very fast way to lose 100% of your investment. The outcome can change very quickly.

 

[Running_Man]

The way I have won with stock options is identifying the following:

1) Purchase the options at what you think is a turning point in the security you are betting for or against, this allows you to quickly realize if your assumption is wrong or right. As an example you look at various indicators and see the market has made a high and fallen off and now is rising back. You believe from your indicators the market is going to fall away. For instance if you think the S&P500 is going to fall you look for a spot close to the high you expect not to surpass. If it surpasses that high you are wrong and sell immediately.

2) Be willing to do nothing for a very long time. Most of the time there is not a good play available and time is your enemy if there is not quick movement.

3) Do not listen to other people as to deciding to trade something or not, they will tell you cannot win, urge you to sell before you should if you are ahead and call you just lucky if you have a winning trade. 99% of all investors will think you are crazy for buying options.

4) Establish a budget for the amount you are willing to lose in a given time frame and stick absolutely to it, this is one of the greatest advantages of options, you get great margin on a limited amount of funds.

5) Determine the time frame when you expect the move to occur, double that time frame and buy an option that covers the doubled time frame.

 

[NW-Bound]

How did YOU learn?

You learn by doing. Start small, with only what you can afford to lose.

I do options more for defensive reasons and not to get rich quick. Risk and reward go together. I do low risk/low reward.

I have been doing options for close to 20 years, but did not become really active until 2 years ago. My objective is to pick up a couple percent of extra return each year compared to doing nothing.

I don't buy but sell covered calls and cash-covered puts. The few times I bought options, I lost 9 out of 10 times, so I stopped.

When selling options, I try to pick the strike prices far enough so that the options will expire worthless, but not too far that the premium is too little.

 

[Lakewood90712]

The Options Industry Council has free webinars and other learning resources.
https://www.optionseducation.org/

Long time, like 20 + years ago they did low cost live seminars.

This will teach you the nuts and bolts of the trades,puts , calls, straddles , strangles. it will NOT teach strategy. I would be very leery of anyone who tells you it's easy to make $$$$ with options.

 

[njhowie]

The Options Industry Council has free webinars and other learning resources.
https://www.optionseducation.org/

Long time, like 20 + years ago they did low cost live seminars.

This will teach you the nuts and bolts of the trades,puts , calls, straddles , strangles. it will NOT teach strategy. I would be very leery of anyone who tells you it's easy to make $$$$ with options.

Good reference Lakewood. This is probably the best place to learn about options - something every investor needs to do before getting involved with strategy and trading.

Take note of the fine print at the bottom of the page:

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options.

Start with Chapter X on page 57 of the Characteristics document, "Principle Risks of Options Positions", and note the very first risk reviewed:

1. An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time.

After reading Chapter X, then go back to the beginning and read the entire document.

 

[atmsmshr]

MarketTimer

On the Bogleheads forum there is a long running thread on Options trading started by MarketTimer. Begins right before the great recession and runs through his personally induced bankruptcy. Yikes.

The thread reads like he got hooked on options as things worsened in the economy until the bitter end of margin calls wiped him out. Kinda like a heroin addiction and begging for money to get the next fix. My opinion is that Options works for some (e.g. brokers and other salesmen, the fortunate), but this is not my cup of tea in risk tolerance.

YMMV

 

[DrRoy]

By forgetting about it forever, or sending the $ to me.

 

[Cichon_007]

I don't buy but sell covered calls and cash-covered puts. The few times I bought options, I lost 9 out of 10 times, so I stopped.

When selling options, I try to pick the strike prices far enough so that the options will expire worthless, but not too far that the premium is too little.

In times of super low volatility it's not really worth the risk of selling covered calls. When there's a market freakout and volatility spikes, you can collect the premium. Essentially I use them as limit orders where I get paid to place the order.

Anyway, I suspect the OP will be trying to use some all-in options strategy. I think they're a good tool to supplement your gains but almost certain these "systems" are bunk.

 

[Coolius]

I have been using a options strategy to supplement the return from my portfolio for many years.


I would not recommend the OP try any options until he has done many paper trades and understands the leverage behind options.


He/She also needs to understand the "Greeks", and be able to comprehend more complex stuff like diagonal, rollout, butterfly, Iron Condor, etc. Not an easy or inexpensive learning cycle. I know, I paid my dues, and they were NOT cheap.



If your expectations are modest, you might do okay - but in no way should one think options are a road to big riches.

 

[MRG]

Best way is start with a million dollars, when it's gone you're done.

 

[workburnout]

Best way to start out is trade some covered calls. That is the safest way to trade options and you can still make some money. You can lose unlimited profits in theory, if your underlying stock goes up enough. Read up on those, try a few trades, and you will get a better feel for it.

You can learn how to trade covered calls doing a google search. Those are not difficult.

 

[Freedom56]

Any thoughts on the best way to teach myself how to play with stock options?

Thinking I may like to dabble a little and see if I can get the hang of it, once I have more free time. DH just ordered a CD from some guy we saw on TV that supposedly is a wizard at it.

How did YOU learn?

There are many online video tutorials on TD Ameritrade. They also have a good trading platform for options: thinkorswim But keep in mind that 80% of the money made by option trading are done by investors who write calls and puts not the one's buying them.

 

[cyber888]

Sell options with good Theta burn rates I like selling options, rather than buying. Pocket the premium.

 

[OldShooter]

... keep in mind that 80% of the money made by option trading are done by investors who write calls and puts not the one's buying them.

Interesting assertion. The implication is that calls are consistently overpriced relative to their risk. Do you have a link or a citation to back this statement up?

 

[CyclingInvestor]

In 1980 (age 21) I decided to "play" with options, and had the unfortunate luck of making almost $1000 on my first trade. Fortunately, I only ended up losing a couple thousand before going into bonds for a while, then finally into dividend-growth stocks in 1993, where I have been since.

 

[NW-Bound]

Hard statistics on options are not easy to find.

It's a fact that a majority of options (75%) expires worthless, which means the option buyers get nothing and the option sellers pocket the premium for nothing.

However, those are the options that are held to expiration. Of all options that are opened, about 3/4 are closed out prior to expiration by the buyers selling them. Do they sell at a loss or a gain? I have not found a statistics on the average gain or loss.

One thing is sure though. The time value decay works in favor of the option sellers, not the buyers. That works for both call and put options.

If so, who would buy options? People buy put options for the same reason as they buy vehicle crash insurance and home fire insurance. Most of the time, nothing bad happens, and the insurance companies pocket the premium. And people buy call options the same way people buy lottery tickets. The potential loss is finite (the cost of the ticket or the call premium), but the potential gain can be very large.

An analogy is that option buyers are like casino gamblers, while option sellers are like the house. In the long run, the house has a net gain.

 

[cyber888]

Exactly!

Hard statistics on options are not easy to find.

It's a fact that a majority of options (75%) expires worthless, which means the option buyers get nothing and the option sellers pocket the premium for nothing.

However, those are the options that are held to expiration. Of all options that are opened, about 3/4 are closed out prior to expiration by the buyers selling them. Do they sell at a loss or a gain? I have not found a statistics on the average gain or loss.

One thing is sure though. The time value decay works in favor of the option sellers, not the buyers. That works for both call and put options.

If so, who would buy options? People buy put options for the same reason as they buy vehicle crash insurance and home fire insurance. Most of the time, nothing bad happens, and the insurance companies pocket the premium. And people buy call options the same way people buy lottery tickets. The potential loss is finite (the cost of the ticket or the call premium), but the potential gain can be very large.

An analogy is that option buyers are like casino gamblers, while option sellers are like the house. In the long run, the house has a net gain.