Solving the Mystery - How Long it Really Takes

opstrader

Newbie
7 0
Hey guys!

I'm new to the forum and new to trading. Like many others, I asked myself the question how long it takes to become a proficient trader. After reading many threads in this forum I realized I wasn't going to be able to get a solid answer so I decided to take matters in my own hands.

I'm going to attemp to solve the mystery and find out how long it really takes. I'm going to document my journey to become a successful trader. If you're an aspiring trader and would like to follow my journey you can do so at www.opstrader.com

Here's the introduction I posted on my website along with the posts for my first week. If you have any suggestions please reply to this forum or shoot me an email to [email protected]

Thank you and I hope you enjoy it.


INTRODUCTION

Hi! I’m OPS Trader and I’m fixing to embark on a journey to become - hopefully - a successful Options trader. I’m starting this project in hopes that it will help in some way all those aspiring to become full-time traders, part-time traders, or those simply looking to have some fun paper-trading Options. I’m in my early 30’s and I hold a BBA in Management from the University of Texas. I’m lucky enough (or so I’d like to think) to make a steady six-figure income working in the Oil & Gas industry, but I’m always on the look for new ways to make extra money, and while I’m not planning to become a full-time trader, I do hope to become a proficient trader.

I first learned about derivatives in my early 20’s when I took an Investment class at the Austin Community College. While I didn’t care too much about stocks and bonds, I was completely fascinated by options and futures. I believe it is the complexity behind them what makes them so fascinating. Unfortunately, back then I was not prepared to tackle such an intricate subject. It wasn’t until a couple of months ago that I decided to take an introductory class to options and futures offered by the University of Texas. It only covered the basics but it certainly helped me to get a broader perspective of the subject.

As you can see, my experience with derivatives is close to none. I’ve never done any kind of trading and that includes paper-trading. Yet, my ultimate goal is to create a step-by-step guide on how to become a competent options trader. Such guide will only cover the necessary steps to get to that point. To become a proficient trader is going to be up to you. You can teach a person how to fly a plane in a matter of days, but it certainly takes longer than that to do a heroic landing on the Hudson River. That being said, I will document every single book, article, and website that I read; I will record the time spent on doing such things, and I will provide a weekly summary of the concepts and strategies that I learned.

Keep in mind that this will only be a guide for you to use to learn on your own. It will give you an idea of how much time and effort it really takes to become a proficient trader. Hopefully, this guide will positively encourage those willing to learn and discourage those thinking they can learn on the go trading with real money, which they might, but I think that could be a costly endeavor. Nonetheless, I think it’s worth mentioning that I’m not responsible for any losses you might experience after following this guide, but I do hope to be partially responsible for your success. Once again, I will provide weekly updates of my progress so make sure to keep up with my website and follow me on Instagram (opstrader).

Note: While I’m not necessarily a Math guru, I did take some advanced Algebra classes and Introductory Statistics classes while in College, therefore, some of the concepts might be easier for me to understand compared to those with no Mathematical background. You can find free college level courses on these subjects at ocw.mit.edu , www.khanacademy.org and www.edx.org



Week 1

This week I’m going to focus on mastering the basics of Options. I’m going to study the contents in lesson 1, watch the videos several times, and find a way to assess myself to ensure I’m truly making progress towards my goal. I spent about 3 hours finding these resources, so hopefully that’s 3 hours you can better utilize learning the contents rather than searching for them.

In case you didn’t notice, mastering this portion of the guide is my first goal. How do you eat an elephant? One bite at a time. If you try to accomplish too much at one time you might get overwhelmed and give up. You need to have short term and long term goals. My ultimate goal is to become a proficient Options trader, but for now, mastering this section is my goal, which in turn it will allow me to make progress toward my long-term goal.

Once I come up with a realistic way to assess my knowledge I will post it here. Like many of you, I have other obligations and I can’t devote entirely to learn about options, which I believe is actually good because is going to give you a more realistic idea of how long it really takes considering that most people needs to make a steady income elsewhere and can only do this on their spare time.

I’m guessing is going to take me between 5-7 days to truly master the basics, but like I mentioned before, I’m going to take time measurements throughout the entire process so I can give you a solid number. For example, 3 hours on Monday, 2 on Tuesday…for a total of 15 hours a week. I hope some of you guys get started at the same time so we can compare our progress and eventually come up with the average time it really takes to become a successful trader.

Good luck everyone!

OPS Trader




Lesson 1 - The Basics

• What are Derivatives?

Start with the following video so you can get an idea of what derivatives are and how they work.


• Hedgers and Speculators

Although I’m going to focus on Options, Futures are also financial derivatives, therefore, some of the videos you’re fixing to see are about futures but most of the concepts in the videos also apply to options.

Go to http://www.cmegroup.com/education/interactive/intro_to_futures/start.htm and click on “Launch Course”

Watch these sections, “What are Futures” and “Who trades Futures”.

• OTC v. Exchanged-Based Markets

Watch these two videos to understand the basic differences between Exchanged-based markets and Over the Counter (OTC). The information is the same for the most part but the videos complement each other.



• Learn the Basics of Options

Read the following brochure from the CME Group http://www.cmegroup.com/education/files/options-on-futures-brochure.pdf

Go through the Options Institute tutorials “Options Overview” and “Introduction to Options Strategies” http://www.cboe.com/LearnCenter/Tutorials.aspx

Now that you’re familiar with the main concepts and the vocabulary, watch this tutorial about derivatives http://www.cmegroup.com/education/interactive/webinars-archived/overview-of-derivatives.html

Along with these online resources, I will be using Fundamentals of Futures and Options Markets by John C. Hull. This week I will be focusing on the following chapters:

Chapter 1 – Introduction

Chapter 4 – Interest Rates

Chapter 9 – Mechanics of Options Markets
 

opstrader

Newbie
7 0
Week 2

Those of you with a M-F job and other obligations can easily understand that it’s not easy to devote enough time to learn a complicated subject like it is the case of derivatives. At the beginning of the week, my progress towards successful trading was being hindered by what it seemed a trillion emails and phone calls coming from every possible direction. Luckily, after Tuesday things began to improve and I was able to devote a few hours here and there to my readings and further research.

One thing that I have realized at this point (keep in mind that I’m a total rookie), is that learning about options or for that matter, any other financial instrument, is completely different than learning how to trade, particularly how to analyze the market. As of right now, I’m familiar with the basics of options and even learned about basic trading strategies but still, all that seems to be useless unless you know how to analyze the market.

I’m not saying that one is more important than the other, but clearly they complement each other. It would be rather pointless learning a strategy that works well in a volatile market if you have no clue when the market may behave that way. You might find amazing that it took me an entire week to realize that, and indeed it is. It is also at this point that I wish I had mentor. Unfortunately they appear to be quite scarce and as rare as a non-corrupt third world country government.

Without a doubt, the battle is still on. My recently modified plan of action is to tackle both fronts. I will distribute my learning time equally between options and trading. After spending some time searching for a good book to learn the basics of trading I decided to go with High-Probability Trading, by Marcel Link. I later found out that it was part of the recommended readings list in trade2win, so shame on me for wasting time researching books.

The tally for the first week is 14 hours. I was able to fully absorb all the contents I posted last week and now I don’t feel lost when I hear strange terminology. One thing I have failed to do is find a way to test my knowledge. The book I’m using (Fundamentals of Futures and Options Markets by John C. Hull) has plenty of exercises but you need to buy the solution book separately, and unfortunately there’s no ebook version of that book and I’m too far away from the US right now to have it shipped here.

I found plenty of resources on the MIT OpenCourseWare site which I’m including in this week’s lesson. You can use those links to guide your learning process and pay particular attention to all the recommended readings for different subjects. It’s all free so it will be harsh to complain that not all of the contents are available for every class but you can try and make the best out it. I would love to hear constructive criticism from the pros and the newbies like me as well. You can always send me an email to [email protected] or visit my website www.opstrader.com.

Cheers!
Opstrader


Lesson 2

Start reading High-Probability Trading by Marcel Link.

It is important to learn the basics of trading rather than just focusing on learning options.

http://www.amazon.com/High-probability-trading-become-successful/dp/0071381562

Read the following chapters in Hull’s Fundamentals of Futures and Options Markets:

Chapter 10 – Properties of Stock Options
Chapter 11 – Trading Strategies Involving Options
Chapter 12 – Introduction to Binomial Tress

If at all possible, acquire the solutions manual for the chapter-end exercises so you can practice your learnings.

Read chapter 1 in Back’s A Course in Derivatives Securities.

Chapter 1 just covers the basics so don’t be afraid yet. The rest of the books appears to be more complex but quite interesting.

Take advantage of MIT’s OpenCourseWare site

You can start by reading the syllabus for the Options and Futures Markets class offered at MIT. It contains a schedule you can follow and a list of books and articles that you can read at your discretion.

MIT 15.437 Options and Futures Markets Syllabus

http://mitsloan.mit.edu/students/academiclife/syllabi/Sloanbid/15437.pdf
http://mitsloan.mit.edu/students/academiclife/syllabi/Fall2008/15437_Fall_2008.pdf

Lecture Videos - Options – MIT

Here is the link to the Options part of the Finance Theory I class, in which they explain the basics quite well.

http://ocw.mit.edu/courses/sloan-sc...-fall-2008/video-lectures-and-slides/options/

Analytics of Finance – MIT

My plan is to do the entire course but I’m eating the elephant one bite at a time, so I’m going to take it slow with this particular couse.

http://ocw.mit.edu/courses/sloan-sc...-450-analytics-of-finance-fall-2010/index.htm

Eric Rosenfeld – Analysis of the LTCM Story

Just an interesting video to watch.

http://video.mit.edu/watch/eric-rosenfeld-15437-presentation-21909-3771/

Investments – MIT

It has some useful links to books and other resources.

http://ocw.mit.edu/courses/sloan-school-of-management/15-433-investments-spring-2003/
 
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ACstudio

Active member
138 14
Looking forward to following your journey. I've only been at it a year with over 800 trades but I feel like I've come a long way and am looking forward to future challenges.
 

opstrader

Newbie
7 0
Looking forward to following your journey. I've only been at it a year with over 800 trades but I feel like I've come a long way and am looking forward to future challenges.

Thanks ACstudio, I hope you enjoy it and maybe even learn something along the way. By the way, 800 trades in your first year sounds like quite an accomplishment! This is only my second week and I feel like I'm at the very least 6 months away from paper trading. Does that sound like a reasonable goal?

OT
 

ACstudio

Active member
138 14
I'd start paper trading ASAP....why not. Make a bunch of mistakes now. Learn as much as possible.
 

lloydbee

Well-known member
275 17
This is only my second week and I feel like I'm at the very least 6 months away from paper trading. Does that sound like a reasonable goal?

OT

Waiting 6 months to Virtual trade would be a severe, severe waste of 6 months. There is no reasonable excuse as to why you should not fire up a Virtual trade in your first week.

You will need to learn your way around your platform, where to access Option Chains, Charts, and Option statistics for example the options Greeks, Bid and Ask as well as where each months options are located as well as the steps to get the trade filled.

Your first trades could be buying and or Selling multiple strike Singles and seeing in a visual daily way as to how those options are effected by the direction of the days trading and Greeks and also it is lessons on your Brokers platform as this is another area you will be needing to learn about.

Spending too much time learning intimate details about options or strategies can lead to analysis paralysis. I have seen this in people who have spent far too much money taking many, many mentoring classes, reading far to many books and watching far too many online tutorials/webinars vs. actually placing actual virtual trades.

Virtual trade, make mistakes, lose money and lots of it often and find out WHY the trade lost money and start preparing ways to lesson the loss or counter trade the losing position. Trading options is not about the trade as much as it is managing the trade, or in another term.... it's not what you trade but how you trade that matters.

Lloyd
 
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opstrader

Newbie
7 0
Virtual trade, make mistakes, lose money and lots of it often and find out WHY the trade lost money and start preparing ways to lesson the loss or counter trade the losing position. Trading options is not about the trade as much as it is managing the trade, or in another term.... it's not what you trade but how you trade that matters.

Lloyd

Hey Lloyd, I sincerely appreciate your comments. I’ve been looking at the different trading platforms and it seems that Think-or-Swim and OptionsXpress are the most suitable for trading Options. Would you recommend either one of those?

You have quite some experience trading options. Is mentorship an option? I know everybody is rather busy now-a-days but if you can spare some of your time to share your knowledge I will truly appreciate it. It will be nice to know if I’m on the right path or if I need to take a different approach.

Thanks,
OT
 

opstrader

Newbie
7 0
I'd start paper trading ASAP....why not. Make a bunch of mistakes now. Learn as much as possible.

Thanks ACstudio, like I mentioned in my other post, I’ve been looking at some trading platforms and I’m considering Think-or-Swim and OptionsXpress. Have you used any of those? Would you recommend either one?

Thanks
OT
 

lloydbee

Well-known member
275 17
Hey Lloyd, I sincerely appreciate your comments. I’ve been looking at the different trading platforms and it seems that Think-or-Swim and OptionsXpress are the most suitable for trading Options. Would you recommend either one of those?

Thanks,
OT

Forget OX if you plan to be a live trader in the future, you cannot go wrong or find better a better platform for options than Thinkorswim, period.

Lloyd
 

opstrader

Newbie
7 0
Forget OX if you plan to be a live trader in the future, you cannot go wrong or find better a better platform for options than Thinkorswim, period.

Lloyd

Thanks for your advice Lloyd. I have downloaded TOS and been trying to get familiar with the platform. Would you recommend any method in particular to learn about technical analysis, or does it all come down to buying some expensive software that does most of the job for you?

Thanks,
OT
 

ACstudio

Active member
138 14
I'm all about TOS. I have yet to have anyone show me a better retail trading platform. And take advantage of all the archived seminars under the support tab...esp the Wading Pool seminars which are geared toward beginners....lots of Youtube how to vids for beginners also...some better than others.

TOS can do all the technical stuff you want...but I really don't care about it either way. Aside from looking for price extremes but even that is just subjective on my part. Mostly we are looking for liquid underlyings with high Implied Volatility Rank (IVR).

Feel free to learn all the technical or fundamental analysis you want and use it as an engagement tool....whatever appeals to you. I'll flip a coin sometimes, or ask someone who knows nothing about stocks or fade someone who irritates me like some so-called guru. Whatever, it doesn't really matter if you subscribe to The Efficient Market Hypothesis and Random Walk Theory.

Just don't get too attached to your assumptions about direction or whatever and learn to manage risk either from entry or through delta management.

If you've got TOS up and running go ahead in go into your Paper Margin account and sell a out of the money put on something that's beat down with high IVR (some examples USO,SLV) in a monthly expiration with as close to 45 days to expiration as possible, and maybe sell some calls out at 15 deltas on QQQ or SPY....and see how it goes. I usually look to collect around 6-10% in premium vs the buying power being used...that way I'm looking to get a 3-5% return on Capital within 20-25 days if I take the position off at 50% max profit. That's just one way of looking at it but should get you started.

Learn how it effects your buying power, and how the deltas change with time and price movement. Push all the buttons see what they do...almost everything in TOS can be customized and almost every button does something.

You can always reset the account and platform if it gets all crazy out of wack.
 
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