Starting out trading options

Discussion in 'Options' started by allonred, Nov 4, 2007.

  1. allonred



    I am getting ready to start trading options. So far I am almost through Option Volitility and Pricing. And I have read most of the way through The Option Trader Handbook. Can someone please recommend other good books I should get and read? I was planning on getting Charles Cottle's book, but I thought I would ask the forum and see if there were any other recommendations I should put on the list before Cottle's book. I have a technical back ground and I can figure stuff out but I am not realy big into calculas/Hull type books.(Maybe some day)

    I have traded in the past but it was mostly futures and I want to make sure I am prepared for options trading before I rush in and loose a bunch of money. I have a technical analysis technique that I have developed over the years. Having said that, I am looking to initially trades ratio backspreads and credit spreads depending on market conditions. Eventually I want to branch out into more complex strategies and adjustments as I go along and learn more.

    A few questions additional questions I thought I would ask the forum:(or if you can point me to a reference I have no problem looking it up)

    -What is the average volume of a stock I should look for to keep the bid/ask spreads reasonable?
    -Is there a daily volume rule of thumb to look for on ATM options?

    Any thoughts are much appreciated!

  3. Simply reading is not a pre-requisite. First make sure you understand how time decay, volatility and deltas work with options. Natenberg should give you a detailed dry background but you may overlook the simple practical applications buried in there if it seems over your head. Chapter 2 od Option trader Handbook is a practical discussion of time decay and volatility but still just on the surface. Cottle's book is good but will be way over your head for some time perhaps.

    My advice is in addition to reading those tomes, spend some time at of the Options Industry Council and go over their sections on the greeks. The more familiar you are with how time decay and volatility work, the easier it will be to avoid some newbie mistakes.

    Start on paper simply for monitoring how greeks work in real examples. paper trading is not a good proxy for the real thing no doubt but if you are interested in buying an ATM call on a stock you expect to go up in price, paper trade the current month ATM call, the next month ATM call and an ATM call 3 months out to expiration. This will give you a visual of how an option will move if the stock goes up or down and show you the difference in effects between short term and longer term options. Also track the IV of the respective months and see how they change.

    Once you got a feel for that then you can start small with real money. Then the real learning begins.

    P.S I wrote the Option Trader Handbook so let me know if you have any specific questions. It is not a pure beginner text but can still be helpful if you learn the greeks as discussed above.
  4. allonred


    Thank you insaneinvestor and optioncoach for your suggestions. I will use them as I get ready to trade, also OC thanks for the offer I will let you know if I have any questions as I read.

  5. Those were good questions that did not seem to get answered here. I, too, am interested in what experts would say is the minimum stock volume and minimum daily option volume to look for when considering options on equities. Where does one even find the average daily option volume for equities?
  6. I think if you stick with S&P 100, DOW 30 and Naz 100 stocks you will get $0.05 to $0.10 spreads depending on the stock price and a few of these are in the penny pricing program.

    Forget about stock volume, if you want to know if an option is liquid first look at the penny spreads, then the options with nickle spreads and even dime spreads for stocks like GOOG.
  7. Nanook


    Try this website for "Total Average Daily Volume" (in Excel format):

    In addition, at the the top of this website (Elite Trader) click on the Options Analysis button and then hover your mouse pointer over the Volumes tab for the Top Twenty Options Volumes and Volumes Gainers (courtesy of Interactive Brokers).
  8. Thanks for the help. Especially the CBOE Excel page, exactly what I was asking about. :cool:
  9. Good luck reading books, i studied finance in university and it didn't teach me anything! time decay will kill you if you are trading options and you have no idea what you're doing....

    do yourself a favour and find a course to do.

    here's a couple:
    <a href="" title="Mastery of Stock Market Intelligence">Mastery of Stock Market Intelligence</a>
    <a href="" title="E-minis Global">E-minis Global</a>

    This is an interesting read if you are interested... <a href="" title="What I Didn't Learn At School But Wish I Had">What I Didn't Learn At School But Wish I Had</a>
  10. What a bunch of crap. Do not post your spam here, it's not welcome. Nobody asked for info relating to the junk you posted (stock mastery, e-minis, lessons taught in school, etc) and these websites you posted are nothing but a load of marketing crap.

    Take your spam elsewhere.
    #10     Nov 18, 2007