How does one trade options?

ConfusedInvestor

Junior member
14 2
I've read the wikipedia page on options trading, but unfortunately i don't really understand what they are. Currently I just trade stocks and etfs, which is very simple. I would like to hear an explanation of how exactly someone trades options. The only thing i know so far is that the "strike price" is really important.

Thanks
 

Sharky

Admin
5,527 281
I've just started trading options myself, so I can offer some suggestions of where to start.

A couple of introductory books worth investing in:

Rookies Guide to Options: Mark Wolfringer
Options Plain and Simple: Lenny Jordan

The best online resource I've come across is called Option Alpha: https://optionalpha.com/ (esp. good if you prefer learning from videos, as they've got tons of them).

Then I'd say just dipping your toe in the water by putting on some real trades (whether paper or live - paper is always safer, but there's nothing quite like having real money on the line to keep the motivation going). Stick to the safer strategies like writing covered calls or credit spreads, 1 lot on liquid contracts.
 

Panic!

Member
70 11
All institutional option traders start with these two books:

Hull: "Options, futures and other derivatives."
Natenberg: "Option Volaitlity & pricing."
 

Sharky

Admin
5,527 281
All institutional option traders start with these two books:

Hull: "Options, futures and other derivatives."
Natenberg: "Option Volaitlity & pricing."
Yeah those two plus McMillan: "Options as a strategic investment" are considered the bibles. In fact I've got all three sitting on my book shelf. But I wanted something a bit easier going to get started with, and the two I mentioned are ideal for that.
 

Panic!

Member
70 11
Never read McMillan, but will get myself a copy. Thanks.
 

hatemypips

Well-known member
372 21
I've read the wikipedia page on options trading, but unfortunately i don't really understand what they are. Currently I just trade stocks and etfs, which is very simple. I would like to hear an explanation of how exactly someone trades options. The only thing i know so far is that the "strike price" is really important.

Thanks
Basically options are useful to construct different "hedged portfolios" where there is no risk in future associated with random market outcomes, but your positions have positive returns. Trading solely options is profitable too but risks are much higher especially if you are selling uncovered calls :)