• Last Updated:
  • Oct 28th, 2019 1:44 pm
[OP]
Jr. Member
Feb 6, 2014
106 posts
1 upvote
Beaverton, ON

Options trading

Is anyone out there trading options? I’m just starting to get into it and am looking for advice/someone or group to bounce ideas off.
6 replies
Deal Addict
User avatar
Dec 16, 2015
2753 posts
2391 upvotes
Skynet Institute of …
Lol not for n000b
To the moon
Member
Dec 28, 2017
334 posts
132 upvotes
Burlington
Don't do it if you don"t understand it. It's a directional play, hedging play, income play , or speculative play.

Buying options requires understanding the pricing of option, liquidity of options , and underlying security .

If you are doing good with stocks... Stick with it.
Open an online virtual account and test it first before doing the real thing if you must try options
Sr. Member
Jun 28, 2018
906 posts
642 upvotes
Toronto
Recommend reading up first to get a basic outline.

The Montreal Exchange (The Canadian Derivatives/Options Exchange, part of TMX Group-Toronto Stock Exchange) has an education section: https://www.m-x.ca/educ_guides_strat_en.php with a guide to options: https://www.m-x.ca/f_publications_en/en ... ptions.pdf The Ontario Securities Commission's consumer education website https://www.getsmarteraboutmoney.ca/inv ... k-options/ even refers people to the Montreal Exchange to learn more.

If you can get your hands on Canadian Securities Course textbooks they have good material as well so you don't need to click through random internet searches.

Investopedia has some good stuff to pick through, but at times they seem to have duplicate posts etc. https://www.investopedia.com/terms/s/stockoption.asp
The Distracted Investor

Dividends through quality companies 😃 Though I usually lose money with trades :facepalm:
Deal Fanatic
User avatar
Dec 14, 2010
6391 posts
7686 upvotes
I strongly suggest reading books on this topic, as it goes in details to what that entails, why you need to do it that way and the temperament required to not let fear drive you to panic or greed drive you to take more risks than you should.

You can use options as an investing tool (getting paid to buy stocks that you want to own for the long term) or as a trading tool.

Have a proven strategy and well understood strategy. Be very disciplined with risk management - never allocate a certain percentage per trade, no matter what. Have a portfolio dedicated to trading, separate from your investing portfolio. Start small until you build proper temperament, which is about discipline, understanding the plan on what to buy / short, when to enter and when to exit. Most option strategies should have a stop loss in place. Trading is about probabilities, so you need a robust strategy to ensure you optimize the probability success at every trade. The concept of valuation also applies to trades, since implied volatility can drive or reduce premium. You should understand how the trade works, which means, you should be able to tell how your strategy gets affected if delta, vega and gama changes. What are the driving factors that enable profitability, what needs to happen. Many times a strategy is based on how theoretically an options structure work, but you need out-of-sample to determine how liquidity affects slippage and how commissions can impact a trade.

Paper-trade for a year before using real money - provided your strategies were profitable.

The following books are highly recommended to master all these skills:


To learn about all different trading options strategies:

Get Rich With Options. by Lee Lowell;
The Rookie’s Guide to Options, by Mark Wolfinger;
Options as a Strategic Investment, by Lawrence McMillan;
Trading Options Greeks, by Dan Passarelli;
The Volatility Edge in Options Trading. by Jeff Augen;
Option Volatility and Pricing, by Sheldon Natenberg.

To learn about temperament and discipline when trading:

Trading in the zone, by Mark Douglas;
Come into my trading room, by Alexander Elder;
Trade your way to financial freedom, by Van K. Tharp.

Regarding tools to analyse a trade, calculate volatility valuation and backtest a strategy: they are all easily available, but they are paid tools. If you are serious into trading, I think it’s worth the cost. Some of the tools include Optionistics, VolatilityHQ, Optionslam, Art of Trading and iVolatility. If you are into designing trading strategies, then the most comprehensive tool is OptionNet Explorer. These tools only make sense after you understand all the different types of combinations that can be done with a strategy - some tools are better tailored for some strategies than others. These tools are simply calculators, they will output valid information based solely on your input.

Start with the books above and be very patient, knowing that it will take months, if not years, to fully master a strategy where you are consistently profitable.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Addict
Apr 22, 2014
3097 posts
468 upvotes
Oshawa, ON
rodbarc wrote: You should understand how the trade works, which means, you should be able to tell how your strategy gets affected if delta, vega and gama changes. What are the driving factors that enable profitability, what needs to happen.
This is the best way to learn. I suggest getting a spreadsheet built with the Black-Scholes formula and all the greeks calculated, start with calls and puts. Everything you need is on the wiki: BS formula
There is also a price to the education. They say you can't learn how to play poker if the money isn't real. Same for options. Buy one 1 month at the money option (suggest QQQ or SPY for optimal liquidity). Track it, day over day in your sheet. Every change in price explained by what changed in the formula. Get comfortable with the idea of implied volatility and how to back that out of the bid/ask. Get that all down and you are ready for the next step, but you'll be 80% done.
signature removed for inappropriate content
Deal Fanatic
User avatar
Jun 26, 2005
9998 posts
1875 upvotes
Toronto
Stick with Calls and Puts for a year or so.
First, do paper trading , like 50 trades and see how you do.
Don't buy more than 4 contracts.
Do the above until you are consistently profitable.

Always put in a stop.

Top