Understanding Options Trading

understanding options

Understanding Options Trading

It is very important to have a solid understanding of the basics of options before starting to trade them. There is a widely stated statistic that 90% of options traders lose money but I think that it is mostly because people decide to buy options as a “cheap” alternative to buying shares of stock and don’t know what they are doing.

Options are a very powerful tool to making money in investing and with the information and technology that is available to the average independent investor now, you can be successful with options with the right foundation.

Below is what I have found to be the best information for developing a solid foundation for getting started. I realize there are hundreds of options seminars and gurus and courses that are thousands of dollars but honestly you can develop a strong understanding of options with minimal budget.

Here is a list of resources for learning and understanding options trading:

  • Chicago Board of Options (CBOE) website for free webinars and tutorials. Go to the Education tab in the site and sign up for free. I would watch everything from Dan Sheridan. You can use COBE to understand the basics of options.
  • ThinkorSwim(TOS) Options Brokerage – I personally use TOS for my options trading and their education webinars and tutorials are excellent. You can sign up for free to use their ThinkorSwim trading platform with a papermoney account to practice trade in real time (I think they have the best technology and trading platform for options. I highly recommend watching their archived webinars and I would make sure to watch the ones from Don Kaufman and Dan Sheridan.
  • Visit the free archived webinars on other options brokerage sites like Tradeking.com, Trademonster.com, and optionsexpress.
  • For the basics, focus on seminars discussing Options Greeks, Options pricing, Understanding volatility and Managing/adjusting trades. Then move onto understanding the various dynamics of the different options trading strategies

For most options traders the strategies they start out with is covered call writing and vertical spreads with calls or puts. The other popular managed risk strategies to understand are double calendars, diagonal spread, and irons condors for income writing.

The only 2 options book I bought to use as a reference to various options strategies are Get Rich With OptionsThe Bible of Options Strategies, .

Both are excellent books but if you want just one book then go with Get Rich with Options as it teaches the 4 main options strategies to know that you can focus on and make good income with. The Bible of Options Strategies is more of a reference book to see the options strategies.

There are lots of options trading courses out there, some of which I review and reference in this post “Options Trading Course Reviews” . I have bought multiple courses, read a lot and learned from trial and error.

Hope this post helps and honestly if you follow the steps listed here it will save you a lot of time and money. It can be easy to get overwhelmed with lots of options strategies and chart indicators, so focus on just controlled risk options strategies like vertical options where you have defined risk/reward and take some time to review the resources listed above.

2 thoughts on “Understanding Options Trading”

  1. Robert Stephens

    I agree that TOS is a good brokerage and a good trading platform but is way too expensive for me. I used Optionxpress for several years until I found Optionshouse and I love them. An example, when I do a spread trade (bullput for instance)I will trade a total of 400 or 600 contracts with a dollar difference in the strike prices. TOS or Optionxpress charges $15.00 per contract so one side of the bullput trade @400 contracts cost $600.00, Optionshouse at $12.50 plus $0.15 per contract cost me $60.00 plus the $12.50 for a grand total of $72.50. It is just a matter of dollars and cents or common sense. FYI, Optionshouse has OH TV and other archived seminars and the trading platform is excellent. Their charts suck majorly so I keep some money in Optionxpress because of the charts.

    1. thanks for comment Robert. IF you are trading that big of size TOS will most definitely change their rates…Guys trading smaller than that can get under $1.00 per contract or $2.00 per each 2sides spread with no other fees so a 50 vertical spreads(so 100total contracts) would be a flat $100

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