Options Research

My friend is currently reading Options: A Complete Guide for Australian Investors and Traders by Guy Bower.. he said its not too bad… good for beginners.

The ASX website is also a good place to start.

http://www.asx.com.au/markets/Options_AM2.shtm

Who took my MONEY[?]

Mike,

Try to find books by Charles Cottle. If your brain doesn’t shoot out through your earholes first, he’ll give you a great understanding of how to actually trade them without losing your arse.

re Guy Bowers Book: Agree it is a good book for the basics.

Another good book if you are interested is The Options Course by George Fontanills. Market Wizards, New Market Wizards, and Stock Market Wizards by Jack Schwagger is also pretty good. Your local library should have plenty of books for beginners too.

Chief Wigam, If you are looking for an options course, PG knows of a good one..

Who took my MONEY[?]

Are you saying this with your experience? were you in one of the above arena you quoated?

Cheers
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This is all true. Thats why I suggest Cottles book.

I also suggest avoiding covered calls unless under certain specific circumstances.

There is also a 4th catagorie (which are a small minority of course). People who make a tidy profit from options thanks very much.

There are in my experience 3 groups of retail option investor, people who are initially profitable or marginal eventually fall into these over a period of time. If you want to have a better likelihood of making a living in this field THEN DO NOT SPECULATE. Get a job working as a broker, quant or analyst for a trading firm or an office job or something else.

I am reading jesse livermores biography again atm, there are a few points that are pertinent :

1. you must start small, as everyone starts this way. But you MUST expect to lose at some stage in your learning, probably most of your capital. With leveraged plays you will lose it more quickly. My suggestion is to learn the basics of nonleveraged investing and lose this way first. Losing in options initially often does not teach basic money management and investment skills in the process of losing as people blow out too quickly. It is really an individual question whether you will learn better learning quickly or slowly, it depends on you personality. BUT YOU WILL DO IT BY LOSING. “All my life I have made mistakes, but in losing money I have gained experience and accumulated a lot of valuable don’ts. I have been flat broke several times, but my loss has never been a total loss. Otherwise, I wouldn’t be here now. I always knew I would have another chance and that I would not make the same mistake a second time. I believed in myself. A man must believe in himself and his judgment if he expects to make a living at this game.”
2. “The game taught me the game. And it didn’t spare the rod while teaching.”. Not surprisingly the best way to learn the art of speculation is not to read a book about it, but to actually speculate yourself. Regardless of how little capital a new speculator starts out with, he must actually bet some of it in the real-world markets to learn and grow as a speculator. There is no other way.

And Livermore wisely points out that real-world trading is the school of hard knocks.

There is a miniscule chance of you being profitable in options trading in 3 years (1-5%). There is a small chance of you outperforming indices in nonleveraged investing (10-20%). Which will you choose ?

<<There is a miniscule chance of you being profitable in options trading in 3 years (1-5%).>>

Yes, agree wholeheartedly. But the reason for this is mainly because people do not understand completely the pricing nuances of options (IE the Greeks)…even those who have done option courses…and it is ****ing difficult to get your head around.

I spoke to a lady last week who had done TWO expensive option courses. I started talking about implied volatility…..she didn’t know what I was talking about!!!!! Scary!!!!!

People also try to use options purely for leverage…market makers love these people.

Correctly used, options can be less risky than shares. For instance, in the latest ION delisting dabacle, an option spreader may have even profited from the situation. (if options had of been available on ION)

Cheers

Advanced? Yes!
Best left to experienced investors? Definately!
High Risk? Yes and no!

If used to crank up risk via the leverage, then yes, risky. They can be used to REDUCE risk.

So here’s a question for the forum:

Which carries the most risk (ignoring reward for the moment)?

1/ Buy 1000 shares

2/ Write 1000 ATM put options

3/ Buy 1000 shares and write 1000 ATM call options

Cheers