Hello, I am a college sophomore studying finance in South Florida. I have been trading stocks for about a year, but more investing than actively trading. I am looking to learn to trade options because from what I have been reading I would have the possibility to make higher returns with less capital and less risk. If you have any book titles, websites or articles that you think would be more help to me than others, let me know, also I would be interested in taking a professional course whether it is online or class. Do you know of any good ones? Thank you for reading and any advice is greatly appreciated.
Depends on how you use options. If you are just buying options as a leveraged proxy for the stock, then you potentially have higher returns but also have much higher risk. One guy said trading options is like shaving with a lawnmower. There are of course many options strategies. What kinds did you hear about that offer better returns with less capital and less risk? Sounds like the typical guy on the radio trying to sell you something.
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The options would not be used as insurance for stock investments, I am interested in investing straight into options. CBOE.com has a virtual trading program and also a lot of learning articles. What do you think of that website?
Look, options are tempting. They appeal to our greed. I was obsessed with options when I was your age. I read the whole book "Options As A Strategic Investment". Luckily I was broke then. Your experience is "trading and investing some, but mostly just investing", and you think you are going to do well with options? You are going to get your ass blown off. If anything try learning about spreads, and only invest 1% of your capital per trade. This way is essentially like sports betting where your losses and wins are limited, and if you are right 60% of the time you will make money. And if not 60% then at least it will take longer than two and a half days to go broke.
All I am saying is options are much higher leveraged than stocks. If you buy a $50 stock and it goes down to $45, life goes on. If you buy an option, that same $5 move can wipe you out. You seem to be only seeing the other side. Yes that $5 move can make you a big profit, but it can also wipe you out. Bank robbery and drug dealing are also high leverage endeavors. You can get rich overnight for very little work. But you can also go to prison for the rest of your life, or get killed. Yes, some people are successful at robbing banks and selling drugs, but not many. Are you also considering bank robbery along with options trading? I doubt it. You haven't mastered stealing a pack of gum, and you think you are going to take a big win out of Fort Knox. Not likely. If you told me you were successful at day trading stocks for many years, then you might have a better chance, but it doesn't sound like that's the case. When you are young, you think you are invincible because you have never died before. That's the stupidest thing anyone can believe. I also know that it's next to impossible to convince a young person that they aren't invincible. Why not paper trade options for a year and see how it goes? After a year you will have the answer to your question. You will know if you can trade options. And you will still have your ass. That's what sounds wise to me. But that may not be kick ass enough for a young guy like you.
Razvanneagu, Check your private messages, for some reason my post to this thread isnât coming through. Anyway, after you read my private message to you, then reconsider some of the comments here. Like I said in my private message, I didnât know a thing about option trading prior to November 2012, now I trade them EVERYDAY the market is open in underlyingâs across all markets (currencies, commodities, equities, securities, etc.). As of now, I only deal with options in the equity markets (stock and etfâs), just a few indexed options (SPX, RUT, etc.); no future options yet. What is important to me for trading options is the underlying liquidity (volume of the underlying), option strike open interest, and option bid/ask spread (the lower the spread, the better). I started my account with a few grand, so it does not require a great amount to get up and running. A matter of fact, I would recommend starting with less money, that way you actually learn to trade them mechanically and get good rates of return on small amounts; one can scale after that. I simulated trades for a month in order to get a fill for the trading platform that I use (ThinkorSwim) and the mechanics of trading options. In my opinion, the real learning begins when you do it with real money though because that is when you have the emotional effects. Last, if you stay small in your trades relative to how much capital you have and mechanical in your trading, you will stay in the game. Option trading, to me, is a strategic probabilistic/statistical game. Itâs all about the number of occurrences (trades) you have going. Option trading is achievable, Iâve done so myself. Like I said in the private message, I believe it is more about FOCUS, DEDICATION, and TIME. If you want to be successful in trading, treat it like a business. The hard part to me is no longer the trading itself, but the accounting/bookkeeping that I do to see how Iâm performing and the tracking of individual positions/trades. Some trading platforms will aggregate position parameters together and makes it a tad difficult to break out the performance of any one particular trade in that underlying (if you have multiple trades going in one underlying). Currently, my win/loss ration is ~71%, I've gotten better at managing my winners also. Anyway, hopefully you did receive my private message to you and then this post will make more sense. I will try to post my original message again, but until thenâ¦Get Tasted!
Look, I am good at listening to advice given to me and that is why I am researching before making any moves, I appreciate you putting in the time to write all of this and I assure you it will not go to waste. For the next couple months I will keep reading material on options but I will focus on becoming a consistent profitable stock trader.
If your background includes any form of advanced mathematics, options will be right for you. Most people trade them as leveraged directional bets, but the pricing theory of the instrument is too beautiful to be wasted like that. I suggest exploring volatility trading and the non linear nature of options as a way to obtain some kind of edge.