This is my first post here, and I hope its not too much off topic. I have been studying trading for two years, have made and lost money trading equities, though nothing drastic on either side. I have been studying options for about 9 months now, and to be sure, I have only made real trading decisions in the OnDemand feature of TOS.
Yesterday I sat in on a free options trading presentation/mini-seminar, buy someone who has a lot of experience (being a market maker at the CBOE with over 20+ years in options). Some take-aways from the seminar, which I am interested in pursuing more, were:
1. Retail investors typically only by long calls or long puts or do simple covered calls, and for the most part lose most of their money in time decay.
2. The only real way to trade options and remain in the game is to play spreads, offsetting as much time as possible with selling and buying various spreads.
3. Most option traders dont care much about direction like retail investors.
The main focus for me is the spreads piece. He did a lot of examples of showing how to basically ride some upside movement but by paying much less premium by playing with selling the opposite side. It was fancy, fast and hard to follow - I later fond out this was a pre-cursor to being canvassed to pay for his course, which I am sure is very good.
How do I learn more about this way of playing options? Are there any good books that focus on this? I have actually read quite a few options trading books, but the way this presenter used options yesterday, I have never seen that or at least gleaned it from the books I have read.
Heres a hypothetical scenario - see attached images of google. I have never played google, so I have no idea what happens in the next few weeks - the images are taken from within OnDemand of TOS.
At this point price could go either way. I know one trade, which would be expensive, is a straddle. But I am wondering what other trades could be considered here to take advantage of the situation without losing everything blindly. And maybe there isnt a trade, I dont know.
I realize there are many things that could be said here, and I apologize if this is a silly or simplistic question for the traders here.
I'm not the expert here, so I'll let others address your issues.
I'll simply say do NOT take his course, which i assume will cost you hundreds of dollars.
And do NOT start off doing straddles, strangles, IC's or other type spreads, that potentially put all your cash at risk of a total loss, if the stock moves too little or too much in the wrong direction.
It's too early for you to consider trades, that rely of a stock either staying inside or outside a specific trading range, during a specific unit of time.
That stuff comes later.
Start with selling OTM cash secured puts and covered call type trades.
However, if you are going to disregard my suggestion and do spread type trades, do them on low priced stocks while you are learning. Not stocks with high strikes like AAPL, GOOG, ect.
Strikes under $20.
Lets say you think WM will go back up to at least 35 by Jan and want to use options to play that.
Lets also say that you don't want to spend money on the possibility that WM will go above 36. You think that possibility is nil.
Also lets assume the probability of WM going below 31 is also nil.
(that's a lot of assumes)
Lets look at two trades:
WM Jan Long 32 call vs WM Jan 32/36 spread
(i.e. form a spread by buying the 32 call and selling the 36 call)
.....................Call.............................Spread...........
Cost..............160..............................145
Price.............P/L..................................P/L
25................(160)....(100%)..............(145)....(100%)
30................(160)....(100%)..............(145)....(100%)
33.60..............0...........0%..................15.........10%
35.................152..... 95%..................158.......108%
40.................641......400%................255.......175%
The straight call will cost you $160 while the spread will cost $145 because you made $15 back by selling the 36 call.
In the stated range of 31 to 35 the spread does better than the straight call. Also if WM drops below 31 you will lose less money on the spread than the call.
That's the basics and that's probably 75% of what the course will cover.
The additional things will probably encompass short puts and short put spreads plus a few ideas like buying a long term (like a year or more) option and then selling multiple short term options, and 'rolling' the trade up or down. (something we hate)
May or may not be covered in enough depth to be worth while.
The only way to know ahead of time if the course is worthwhile is to get a more detailed description of what is covered and to what depth... preferably from someone who has taken the course.
Whether or not taking a course in these things is 'worth it' to you depends on your circumstances: How much money and time do you have??
How good are you in doing your own research and testing things out on paper??
It's just my opinion but I don't think you can learn to trade from a course.
Thanks for the response. I understand what you are saying and appreciate your time tellig me to be careful.
Doing cash secured puts and covered calls sounds like a good place to start - what would you say if I ask, after spendingtime with these simpler trades, what should I *really* walk away with, knowledge and experience-wise? I assume there is some deeper knowledge that will come from spending time with these types of options, and curious for some guidance. For example I could just chart play and then have a guess withcash secured puts. Or I assume I could look more at the greeks, the prices around different strike levels and expirations, and get a feel for just how the greeks work (I read somewhere that greeks arent necessary to be successful with options trading).
I am a sponge right now, and I am open to any help suggestions. I have a detail-oriented mind, and learning more about options and greeks is not something that I am afraid of.
Thanks for the advice on spending money on a course - I wont be doing that (it was thousands too).
Thank you for your response, and sharing details on that spread trade example; very helpful. May I ask, after pondering your example, when would not buying a spread be the better trade - such as just going long? Do people just go long or short, or does one always look to offset downside risk through some sor tof spread?
Another thing that was mentioned, but sparingly, was looking at IV and standard deviation, using this to work out where to formulate ideas on price movement probability moving forward, and which strikes to look to buying. Looking at this type of information is something I havent done at all, coming from an equity swing trading style of part time trading.
I am a little OCD when learning new things, andI normally do very well when doing my own research on a topic (I am self taught in equities and forex andI am sure I can pick up options). Having a mentor is not something I would shy away from,but for thousands of dollars, it may be better to use that to cut my teeth in the markets.
Lets say you think WM will go back up to at least 35 by Jan and want to use options to play that.
Lets also say that you don't want to spend money on the possibility that WM will go above 36. You think that possibility is nil.
Also lets assume the probability of WM going below 31 is also nil.
(that's a lot of assumes)
Lets look at two trades:
WM Jan Long 32 call vs WM Jan 32/36 spread
(i.e. form a spread by buying the 32 call and selling the 36 call)
.....................Call.............................Spread...........
Cost..............160..............................145
Price.............P/L..................................P/L
25................(160)....(100%)..............(145)....(100%)
30................(160)....(100%)..............(145)....(100%)
33.60..............0...........0%..................15.........10%
35.................152..... 95%..................158.......108%
40.................641......400%................255.......175%
The straight call will cost you $160 while the spread will cost $145 because you made $15 back by selling the 36 call.
In the stated range of 31 to 35 the spread does better than the straight call. Also if WM drops below 31 you will lose less money on the spread than the call.
That's the basics and that's probably 75% of what the course will cover.
The additional things will probably encompass short puts and short put spreads plus a few ideas like buying a long term (like a year or more) option and then selling multiple short term options, and 'rolling' the trade up or down. (something we hate)
May or may not be covered in enough depth to be worth while.
The only way to know ahead of time if the course is worthwhile is to get a more detailed description of what is covered and to what depth... preferably from someone who has taken the course.
Whether or not taking a course in these things is 'worth it' to you depends on your circumstances: How much money and time do you have??
How good are you in doing your own research and testing things out on paper??
It's just my opinion but I don't think you can learn to trade from a course.
Curious... how do you "work" a spread on your platform.. wich do you use, do you like it ?
for example, you only get filled on one leg if other leg gets filled...
