jamescummins
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In order to trade options, you really need to understand the greeks. Best to begin by just trying to get your head properly around whichever model is best suited to the market you want to trade, probably black-scholes. Sounds straightforward at first, but it is a tricky model to fully understand.
Unless you are only planning on being long options, and are happy without having a delta hedge, in which case, there's probably not too much to learn about them from a technical standpoint
All depends what you're planning on trading, and how you are planning on trading it... Let us know, and I'm sure you'll get a range of good advice, annd hopefully not too much bad advice.
*Good place to start if you want to understand the mechanics of options and pricing them is something like Hull, Futures options, and other derivatives. Or I'm sure there are billions of other books for a simpler explanation. If you want to trade volatility, or actively manage an options book, then look to things like Dynamic Hedging by Taleb, or The Volatility Surface: A practitioners guies, or Volatility: the secrets of skewness.
Cheers,
James
Unless you are only planning on being long options, and are happy without having a delta hedge, in which case, there's probably not too much to learn about them from a technical standpoint
All depends what you're planning on trading, and how you are planning on trading it... Let us know, and I'm sure you'll get a range of good advice, annd hopefully not too much bad advice.
*Good place to start if you want to understand the mechanics of options and pricing them is something like Hull, Futures options, and other derivatives. Or I'm sure there are billions of other books for a simpler explanation. If you want to trade volatility, or actively manage an options book, then look to things like Dynamic Hedging by Taleb, or The Volatility Surface: A practitioners guies, or Volatility: the secrets of skewness.
Cheers,
James
In order to trade options, you really need to understand the greeks. Best to begin by just trying to get your head properly around whichever model is best suited to the market you want to trade, probably black-scholes. Sounds straightforward at first, but it is a tricky model to fully understand.
Unless you are only planning on being long options, and are happy without having a delta hedge, in which case, there's probably not too much to learn about them from a technical standpoint
All depends what you're planning on trading, and how you are planning on trading it... Let us know, and I'm sure you'll get a range of good advice, annd hopefully not too much bad advice.
*Good place to start if you want to understand the mechanics of options and pricing them is something like Hull, Futures options, and other derivatives. Or I'm sure there are billions of other books for a simpler explanation. If you want to trade volatility, or actively manage an options book, then look to things like Dynamic Hedging by Taleb, or The Volatility Surface: A practitioners guies, or Volatility: the secrets of skewness.
Cheers,
James
Thanks for the advise James. To me a lot of terms are still vague and my style will not be defined at any point soon. So far I am reading George Fontanills's book Trading Options online and reading up some stuff from Optionetics. I like their style but they do not seem to teach much of the pricing models and the greeks.
This question gets asked a lot and there's a very good answer.
Go and buy the book Options Trading: The Hidden Reality by the Ri$k Doctor, it's THE best book on options bar none. Makes all the others look like candy floss.
Then read it. If you understand it then you'll know just how much work you need to do, which is probably in excess of 2 years of very hard work.
But if you find it the most complex book you've ever read, which I did, then you know you haven't really got a chance with options so forget about them.
And if you balk at spending $100 on the book or whatever it costs then you aren't serious about this business.
Go and buy the book Options Trading: The Hidden Reality by the Ri$k Doctor, it's THE best book on options bar none. Makes all the others look like candy floss.
Then read it. If you understand it then you'll know just how much work you need to do, which is probably in excess of 2 years of very hard work.
But if you find it the most complex book you've ever read, which I did, then you know you haven't really got a chance with options so forget about them.
And if you balk at spending $100 on the book or whatever it costs then you aren't serious about this business.
Are you saying you do not trade options because you didn't understand this book?
Yes, because if you don't understand options correctly, which the books goes into much detail, then you have almost zero chance because think of the people you're up against in the market?
jamescummins
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Again though, depends how you want to use options. If you own shares and are selling topside calls as a hedge / increased revenue in a flat market, and are happy with the downside, then there isn't too much to know. Similarly, if you are happy to use them to leverage a view you have on the underlying, as long ass you understand the payoffs, it's not too tricky.
If, as has been alluded to, you want to trade a book, ''trade' the greeks, volatility, skew, whatever else floats your boat, then you really do need to understand option pricing, valuations, and the risks in detail. You really have to properly understand even the basic models to get a picture of what you exposure is. That is not an easy thing to learn, and does take a lot of time, but is essential.
If, as has been alluded to, you want to trade a book, ''trade' the greeks, volatility, skew, whatever else floats your boat, then you really do need to understand option pricing, valuations, and the risks in detail. You really have to properly understand even the basic models to get a picture of what you exposure is. That is not an easy thing to learn, and does take a lot of time, but is essential.
Fantastic, this is the kind of advice I needed. I did not want to waste much time learning useless things.
Although I have come across two strong points of view in learning options. One person says keep it simple, stick to what is comfortable and specialize in that. The other person says learn everything you possibly can because of the competition in the market.
In personality I am the second person but I agree with the first person more.
Although I have come across two strong points of view in learning options. One person says keep it simple, stick to what is comfortable and specialize in that. The other person says learn everything you possibly can because of the competition in the market.
In personality I am the second person but I agree with the first person more.
jamescummins
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How about this for an exercise... Read a couple of books, do some googling, get some basic info on option pricing. Then try to build your own pricing model in excel - just a simple BS thing. Try to see, and then understand why, there are differences between what your model says things should be worth, and what they are worth. Might help as a start to begin understanding the complexities.
