Too many beginning traders move into options thinking of them as cheap surrogates for their underlying stock. That’s not entirely unwarranted: given the right conditions, many trading strategies translate nicely from stock trading to options.
But how is a trader to know when those conditions are right? There is only one way – you need to understand options. You need to know the function they fill in the financial markets; you need to have an idea of ‘true’ pricing, you need to have a handle on how fundamental data impacts options pricing differently than it affects the stock or ETF on which the option is based. In short, if you want to trade options the way you trade stocks, you need to know how differnet the two are. And the best way to do that is to educate yourself by reading the best options trading books available.click here
Here are some the best options trading books currently available:
* Options Made Easy, by Guy Cohen
* McMillan on Options, by Lawrence G. McMillan (McMillan is one of the most seasoned veterans in options trading and training – take his stuff VERY seriously)
* Trade Options Online, by George Fontanillis (another veteran – his work is very useful)
Of course, no book reading can replace trading experience. When you have read and digested these options trading books, use any paper trading functionality your broker offers to see how those lessons pan out in real life. And be sure to use your own broker for this – you want to make sure you understand their interface before diving in with real money!
Only once you’ve done both – read the best options trading books and done some serious paper trading – will you have the understanding of options to know what kind of trade will work in what sort of market environment. Should you just buy call or put options? Or do the current conditions dictate more complex spread strategies? Which spread would be best? Do you establish whole position at one time, or should you leg into it? How long can you hold the position before time decay eats away at any profits?
There are many vectors to be mindful of when trading options. These multiple considerations allow for great risk/return balances, but you MUST know what you are doing before you trade live. If you jump into trading without that education, your account won’t be live for long.