You can answer your own question very simply. Are you currently successful...consistently...in trading equities? If the answer is no, then options are very likely to accelerate your losses. You're compounding the difficulty and putting extra hurdles in your way. If the answer is yes, then they MAY possibly help you, depending on your strategy and the strength of your results. There is NO Holy Grail in options strategies, and if you aren't very skilled in predicting movement...or lack of...in underlying securities, then IMO and experience your time is better spent elsewhere.
I'm the same as yourself... Natenburg too soon is just going to bore you death with incomprehensible stuff. I'm probably going to get murdered on this board for recommending the book that James Cordier and some other fella wrote "option writing" (or something like that...) if your a total noob like I sort of am... its good... its the only Premium selling book for option neophytes that I can think of.... I just wouldn't start throwing my money into the strategies they advocate i.e. naked everything. So once you get past this books' blatantly obvious promotion of the aforementioned authors exorbitant brokerage services... you should maybe move on to natenburg, then Cottle, a bit of Baird and M. O'Connell.... I think my point is that you must wade through a river of shitty books that promise a free lunch before you can truly get the benefit of the better ones.... hope that brief tirade can help you a bit
I have a minute free so I'll throw in a random suggestion: After you have a good understanding of the greeks and a half decent pricer (yes, you have to understand how the greeks work even though you can/must use a pricer), don't forget to learn about volatility skews, and call/put parities. These latter points will permit you to select your strikes & expiries based on reasoning instead of just pissing in the wind. By the way, there is an ok pricer built into the "options toolbox" software that can be downloaded from the CBOE link I posted previously. Also, a litle tip to remember: Implied volatilities tend to increase more significantly in bear markets than in bull markets. This pointer can be useful for deciding when to turn to volatility/premium selling strategies.
Another thing I thought of that was extremely useful (and free) http://www.cboe.com/LearnCenter/webcast/archive.aspx Watch these educational videos, especially the ones by Dan Sheridan. I'm not recommending that you should follow any of them as is, but it really gets you thinking and understanding options.
Great news for options traders. Options can now be bought/sold in penny increments. I deal through Interactive Brokers (satisfied client for several years now). Here is a brief description of the "penny options" pricing: Penny Pricing for US Options In an effort to help achieve price improvement, we allow customers to trade options in pennies for Smart-routed US options that trade on the BOX or ISE. Penny prices are posted by customers and other liquidity providers, and are displayed on an option's SMART ticker line when they available. You can post your own penny price to the IB system by submitting a penny-priced discretionary order through the Trading window. If yours is the best price, it will display on the Penny Options page. To try to trade against a posted penny-price Click the Ask price (to create a BUY order) or the Bid price (to create a SELL order). Transmit the order. To submit a price in pennies Create a market data line for an options contract on your trading page. The option must trade on BOX or ISE, and you must select SMART as the data exchange. Click the Ask price (to create a BUY order) or the Bid price (to create a SELL order). Modify the Limit price to a penny price that is better than the NBBO. You can modify the limit price manually, or use the Price Wand. Note that only best penny price in the IB system at a given time will be posted. Transmit the order. If you have submitted the best penny price, your price will display on the market data line for the contract, will be posted to the IB website penny page, and will appear in the scan for penny-priced US options. At the same time, we will round the order to the nearest nickel (or dime) increment (DOWN for a BID, UP for an OFFER) and submit the rounded order to an options exchange, so that your order can trade at a more advantageous price to you if the rounded version becomes marketable. Example: Assume the NBBO is $2.05 - $2.15. If you enter an order to buy 10 option contracts of XYZ at $2.08 in the IB system, IB will send a BUY order for $2.05 to an options exchange. If $2.08 is the best penny-priced bid in the IB system, your $2.08 bid will be displayed. If you don't want your penny price broadcast to the IB website and through TWS, you can elect to hide the penny price of your order by checking the Hide Pennies attribute on an order line. Note that, even if you hide your penny price, the rounded version of your order (rounded DOWN to a nickel or dime increment for a BID, and UP for an OFFER) will still be transmitted to an options exchange for display. To hide the penny price of an order Right-click in the field title area of the trading window and select Customize Layout. Click the Order Columns tab, and scroll down the Available Columns list to the Order Attributes section. Highlight Hide Pennies, and click the Add button. The Hide Pennies column is added to your trading window. To display penny option orders in the IB system, you must understand and agree that: Your penny price (with size) will be publicly displayed through the IB website and TWS unless you instruct us otherwise. Display of your penny-priced indication is not limited to other IB customers and is broadly public. You can instruct us not to display your penny price, but that will make it less likely for you to trade. Your interest at the penny price will not be displayed at an options exchange or through the Options Price Reporting Authority. If you send a penny-priced order, IB will send your order rounded to a nickel or dime (down for a bid and up for an offer) to an option exchange, but your penny price will only be displayed on the IB system. In this respect your penny-priced order is a discretionary order IB is not an options exchange and the IB penny option pricing system cannot execute option orders, only route them to an exchange for execution. When IB sends potentially matching orders to an options exchange, an auction process will be used and you may not get to trade. Other traders will have a chance to come in and join the trade at the same price or offer a better price. The penny prices displayed in the IB system are not âfirmâ and will not always result in a trade. Penny prices displayed through IB are non-firm indications of interest and may be cancelled before you can trade against them or circumstances may change such that IB cannot start the required auction at an options exchange. Trading in pennies may result in a better price but a slower fill. You will have to wait at least three seconds while the option exchange penny auction is conducted. Please click here for important details concerning the Penny Option Pricing System.
Important Information About Interactive Brokers Penny Option Pricing System In order to assist our customers to get better prices for their option trades, Interactive Brokers ("IB") has developed a system to allow customers and liquidity providers to display penny prices in the IB system and to try to trade against other participantsâ penny prices displayed in the IB system. IB will attempt to match penny-priced bids and offers and send them to an option exchange for execution: If you want to post an options price in pennies for other IB users to try to trade against, you can send an order to IB priced in a penny increment (e.g., buy 10 XYZ contracts at $2.07). The order will be treated as a discretionary order, as follows: IB will round the order (down for a bid and up for an offer) to the nearest nickel increment (or dime depending on the premium) and send the nickel-priced order to an options exchange so that it will be working (in this example, IB will send an order to an exchange to buy 10 XYZ at $2.05). Then, unless you instruct us to hide your penny price, IB will also display your penny price (with size) on the public IB website and through the IB Trader Workstation (if your price is the best price in our system). Your penny price displayed on the IB website and TWS is an indication of interest to others that you are willing to trade at a more aggressive price (e.g. bidding $2.07) than the nickel-priced order being displayed in the national options market (e.g., bidding $2.05). If another participant in the system sends an order that can be matched against your penny price (a contra-side order), IB will attempt to execute a trade at a U.S. options exchange using one of the available penny auction pricing mechanisms (such as the Price Improvement Period auction on the Boston Options Exchange or the Price Improvement Mechanism on the International Securities Exchange). During the penny auction process that takes place at the exchange, your order may be executed in whole or in part against the contra-side order at a price no worse for you than the price you specified (i.e., your order to buy 10 contracts at $2.07 will be executed at no higher than $2.07 but may be executed at a lower price depending on the contra-side order and depending on what happens during the auction). Of course, you may not trade at all if during the auction process another participant posts a higher-priced bid (e.g., $2.08). Auctions typically last for three seconds and after this time we will report an execution back to you (if your order was executed) or if we were unable fully to execute your order we will re-display your penny indication (if your price is the best price in our system). As an IB customer, you will also be able to send orders in to try to trade against penny prices displayed by others in the IB system. In that case you will have the opportunity to trade at a better price than the nickel or dime prices displayed in the national options market because someone else on the system has indicated that they are willing to give you a better price. To make the system more attractive, professional liquidity providers such as IBâs affiliate Timber Hill (one of the largest U.S. options market makers) and others will be able to post penny indications in the system for you to trade against, and will also have the opportunity to hit penny bids and lift penny offers that you submit. Before using the IB penny pricing system for options, you should understand the following: Your interest at the penny price will be displayed through the IB system to members of the general public, unless you instruct us otherwise: If you send a non-marketable limit order with a penny price better than the national best bid or offer, and if it is the best price in our system, IB will display the penny price (with size) on the IB website and through the IB Trader Workstation so that others will be aware of your interest in trading at that price, unless you instruct us not to display it. Display of your penny-priced indication is not limited to other IB customers and is broadly public. If you instruct us not to display your penny price, your trading interest at that price will remain confidential but of course it will be less likely that someone will try to trade against you. Your interest at the penny price will not be displayed at an options exchange or through the Options Price Reporting Authority: Most options cannot be displayed at an options exchange at a penny price (the minimum price increment is a nickel or dime). If you send an order to IB to buy 10 XYZ contracts at $2.07, IB will send a buy order to be displayed at an option exchange at a price of $2.05, but your $2.07 bid will only be displayed on the IB penny pricing system and not on an options exchange. IB is not an options exchange and the IB penny option pricing system cannot execute option orders, only route them for execution: What the system does is provide a means for traders to communicate with each other that they may be willing to trade at a penny price between the national best bid and offer (offering both traders a chance to get a better price). If there is a potential match, IB will route both orders to an option exchange penny auction process, where the orders may be executed against each other. When IB sends potentially matching orders to an options exchange, an auction process will be used and you may not get to trade: Other traders will have a chance to come in and participate in the trade or to offer a better price for the execution. Therefore your order may not get filled because another trader may come along and offer a better price (e.g., bidding $2.08 for 10 contracts of XYZ when you were only willing to bid $2.07). The penny prices displayed in the IB system are not "firm" and will not always result in a trade: The penny prices being displayed through IB are non-firm indications of interest. They may be cancelled before you get a chance to trade against them or circumstances may change such that IB is unable to initiate the required auction at an options exchange. Likewise. a customer posting an indication of interest to trade at a penny price (e.g., offering to sell ABC calls for $10.58) may get his corresponding rounded offer ($10.60) filled on an exchange and therefore his interest may be exhausted before you get a chance to trade against his penny price. Trading in Pennies May Result in a Better Price but a Slower Fill By attempting to trade at a better price in pennies between the national best bid and offer, you will get a slower fill than simply trading at the national best bid or offer. You will have to wait at least three seconds for a fill while IB sends your order and the contra-side order to be executed through an options exchange penny auction.
This might explain why I've been seeing some spreads on some options in IB TWS quoted in penny increments. It's only been spreads though, the contracts that make up the spread were still showing nickel increments. I hope this trend catches on fast.
ib has always been the leader and the best thing to ever happen for retail traders even if you do not use them. they were first to force down pricing for all, first to design a fa type account, first to offer a true universal account, first to lower option commissions to $1,and now they will force option exchanges to trade 1 penny.
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