I just started reading a few books. I was very attracted to the mathematical and statistical pricing of options. Specifically, I am more attracted to the math of options, than the technical and fundemental analysis of common stock. In McMillan's book he says, "Don't confuse brains with a bull market." It is my opinion one can do all the technical and fundemental analysis you want, but how can compete against a large firm that hires PHds with electrical engineering degrees to say be analysts for semiconductor stocks. These same analysts visit the CEOs of companies, look them in the eye and ask tough questoins. Also, I have a business degree with a major in accounting (that is going on 30 years ago). Financial statement analysis is something I can do. But, it is boring to me. This mathematical approach I find very interesting. As far as options as opposed to futures, well I simply started reading books about stock options first. I just haven't got around to reading about futures that much. It is interesting, I've noted some debate on this board about what is a better instrument to trade. I will get around to reading about futures trading. But, I just don't know much about them. I am learning about options. I guess my thoughts are I'd like to assimilate one complex subject at a time.
Based on what I read here on this board and what I have read in books, most people lose money when the start out. Tuition costs if you will.
I read his book. Good read. I started out in options 15 years ago because that was pretty much all I could afford to enter on a $3k account. Traded stock and OEX options. The spooz (Pit traded S&P futures) had an initial margin of $8k-10K back then. This supposition is untrue. First of all, the scale of the bigger player dictates that must play within a time frame that is commersurate with their size. So they would be playing with a long term view. Speculators have an advantage because of their generally smaller size. They can take advantage of smaller moves in the market which lend themselves very, very well to technical analysis. My time frame for trading varies depending on the instrument I'm trading. For S&P futures, it's daily. Some trades last as long as a few hours to a few weeks. For Forex, I daytrade. But I'm not looking for absolute tops and bottoms. I catch anywhere from 25%-80% of a move. The Big boys have no real advantage. Just look at their annual ROI. Speculators, when their average to good, do at least twice as much in percentage terms. If they're exceptional, they'll do many times more. It's easier to move less than so many millions in the market than it is so many hundred millions and beyond. I have an economics background. Useless for trading other than I know when Eco reports will come out. But you seem to have an analytical mind. You should apply it to pattern recongition. That's the foundation of technical analysis. It's not that you need to predict tops and bottoms. You only need to know when the market has turned. Then enter or exit. And that's accomplished by studying what represents a turn(reversal) and what represents a continuation. You can start with chart patterns (bars/candlesticks). Then add in indicators such a Moving average to know if you're in an uptrend/downtrend. Then Oscillators... etc etc. Point is keep it simple with the foundation that concentrates on patter recognition. Codified you analysis which will become your rules. Then before you trade, define you money management rules. Stops, risk-reward, etc. I strongly recommend that you look into futures. E-mini S&p to be specific. Superior liquidity ( a must for serious trading) and being that it is based off an index, will not be affected all that much by any one stock's news. If you do go into futures, make certain that you find a broker that has roundturn commissions less than 1 tick, ($25). Well, I understand that certainly. But futures are less complex than options on the whole. For a trader's timeframe (differs from an investor's), there are no "greeks" to worry about. So you can concentrate on your technical studies and entry/exit strategies.
I also agree withe the previous post about the emini's being a superior trading vehicle to options. I started out trading options and it was such a rollercoaster for me to deal with, I only put in 3k to start with and within a weeks it would fluctuate from 2k to 7k. I hear stories of folks becoming millionares from a 50k account and then losing it all, I actually know a guy who went from $300 to $20k within 6 months and is currently around 4k. Every now and then i put on an option play an normally breakeven at best. I moved onto stocks until I started trading the eminis, which is everything I want out of trading,,, good leverage on my money, easier to control my risk, liquid, and studying just one subject as opposed to a new one everyday. It is just a thought. I do wish you all the best, and hope that you are careful, and money management is one of the the most important aspects of trading so keep your trades small right now,, maybe even opena paper trade account to practice with.
JSHINV Sorry, didn't mean to offend and wasn't sure how much you know or don't know, that's why I posted my explanation. You also wrote subsequently: "I usually buy an out of the money put to cover it". That means you don't have a covered call, but a collar instead (synthetic bull call spread). Best Daddy's boy
Buzz and Dunbar, You've piqued my interest. I am going to look into what you suggest. And of course be careful as I do it. Can't talk much now, I've got to run. Thanks.
You're welcome. Hate to see traders blow out. Most of the option players I started with are long gone. Not saying that you'd be though. There are more tools for option players today than when I started. Best of luck to you and good trading.
I've thought about this comment. Given your experience and perspective perhaps you could give me some further thoughts on this. Are the reasons option traders blow out in your opinion because of the extreme volatility of investment and the resulting panic trading that may occur, even when the trade makes sense in when it is made - supported by the numbers? Does it take a different kind of person to trade in options to stay the course, make reasonable adjustments as needed, and not panic close positions when they are going all over the map? I am by no means judging someone who is not that "different kind of person." Because I am not sure yet if I am that different type of person. Or is it because options are just so unpredictable regardless of one's knowledge and tools that they blow out? I know there are issues of greed, and trying to get revenge on the market. But, I am thinking of this option specific, somewhat psychological question. Not a technical question to be sure. But, you have a perspective that I do not. You've seen a lot over a period of time. Thanks.