Are there any good books or other resources out there to learn about buying equity calls and puts. I read few options book and they seem to be focused on explaining all the differnent strategies like spread, collors, etc. I just want to enhance my knowledge about buying calls and puts. I know the basics about volatility, greeks. Ideally i want to know how others are trading options without all the complex strategies. any help is appreciated. Even if the book has only one good chapter devoted to going long call and puts.
Because long options are directional, the key to success is timing and selection. That means that it's the underlying you have to get right, not merely the options. Well OK, there are those little issues like what strike to buy and avoiding IV collapse (post earnings release crash), etc. Therefore, I think that means succeeding at TA, FA, the news of the day, etc. IOW, if you can identify that a move is going to happen, you don't need a lot of sophistication (complex option strategies) on the option side to take advantage of it. Soooo, IMHO, if you get the underlying right, the rest should fall into place.
A couple videos re. directional trading using CCI & DMI, and placing trades outside the first deviation of underlying price. He uses credit spreads, but just buying a put or call works. I use price action & volume analysis to determine turns, then trade synthetic longs and shorts... http://www.discoveroptions.com/public/pages/education/archived_webcasts.html
I agree with Spin that buying and selling options is primarily about direction. But the secondary, and crucial element to being successful as an option buyer is being right on the timing of a market (or individual sock) move, AND also on the implied volatility. If you buy calls and the market moves higher, you can still lose big money when implied volatility gets crushed. You need so much good judgment, that to me, buying options is a strategy that very very few can adopt successfully. How is your current track record for timing and direction? If it's not 'excellent' then this is not going to be a workable strategy for you. Consider learning about spreads, even though you currently frown on that idea. But, I wish you well. Mark The Rookies Guide to Options http://blog.mdwoptions.com/options_for_rookies/
Let's say you've identified a stock you feel is a good buy. Now you want to figure out if you'd rather go long the stock or long calls on that stock. You've already determined that the stock is underpriced, and represents good value. Now you need to look at the "option dimension" of that call and determine if that's good value too. That "option dimension" is variously referred to as premium, time premium, gammas, or implied volatility. You want to determine if you're getting a good deal on that too. If not, then you're better off just going long the stock. And how to determine that? Strictly speaking, you compare the implied volatility of the option with the volatility you EXPECT the stock to have between now and expiration of the option. According to option theory, if you buy an option at an implied volatility less than the actual volatility between now and expiration, the odds are on your side. But how does that work in practice? Implied volatility represents complacency when it's low, and panic when it's high. So at the end of the day you have to make a judgment - are premium sellers (option sellers) underestimating the potential this stock has for a move up between now and expiration of the option? In other words, are they excessively complacent about such a move? If you have a strong feeling that they are - as determined by looking at the implied volatility of the option - then it's reasonable to buy it. So in a nutshell - if you want to go long calls, two criteria must be met. You have to believe that the underlying stock is undervalued, and also that the premium of the option (as measured by its implied volatility) is undervalued. Basically the same logic can be applied to buying puts on stocks you feel are overvalued.
Thanks for all the great info and links guys. Iam pretty good with picking the direction of the stock movement. My technical analysis skills are pretty good. I need to learn the nuances of which strike price to buy under which conditions and different scenarios where iv gets crushed or baloons up. Also i have read few money management books, but those were mostly geared for futures traders. are there any good resources for money management for options trading.