# Options Trading



## stinsont (May 29, 2009)

I am trying to get into options tradingbut am very green. Any advise? Suggested reading? Better yet suggested strategies?


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## Rickson9 (Apr 9, 2009)

Learn how to read financial statements, then you will be able to invest in a company's option contracts well.


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## stinsont (May 29, 2009)

thats your response to everything


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## Spidey (May 11, 2009)

Rickson9 said:


> Learn how to read financial statements, then you will be able to invest in a company's option contracts well.


I disagree. There's very little in a companies financial statements that would teach you how to trade options. Options trading is usually considered a fairly sophisticated strategy and something that I've avoided so far. Many people successfully sell call options, which basically allows the purchaser to buy your stock at a higher price in the future. Most people do it for income and usually hope that their stock is not actually called. But you have to be prepared to sell it if it is called.

Recently Derek Foster is pushing selling put options. This is sort of the reverse. Someone pays you money to obligate you to buy their stock at a future date. The person usually pays you money as a form of insurance. In the event of a large crash, they are guaranteed a price for their stock. The seller of the put, on the other hand, often wants to buy the stock anyway, and figures they can collect the income and if necessary buy it at a lower price than today's value. (But you may have to buy at at a significantly high price than the future market value.) 

That is just a nutshell explanation and there are many potential landmines that I haven't gotten into. If you are really interested, I would look for books on the topic at the library. For me, at this point of time, it's not my kind of investment.


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## humble_pie (Jun 7, 2009)

1) this is not the right forum for discussing options. Other than myself and possibly one other person, no other experienced option traders have come forward here in recent months.

2) it is always the sellers of options who consistently make money, not the buyers. Studies show that the majority of novice option buyers who believe they are going to luck out with a trade or two will lose their money.

3) one can hedge one's sale of an option by buying a different option, but this requires an advanced knowledge of strategies and spread trading.

4) your broker should or will limit a novice option trader to selling covered calls, buying options, & selling the options that he alreadys owns.

5) every options trader needs to have fast, accurate math skills and a knack for problem solving. Long term success requires a strong and steady discipline. Too many novices with small accounts think they're going to pick up a hot tip and utilize leverage to gain huge profits. The high probability is that they're going to lose 100% of their money.

6) still interested? the best short guide to options trading is a well-written 50-pager available for free at the Montreal exchange website. It will take the reader from elementary startup definitions through black-scholes and binomial theory, and on to IV and the greeks. Here's the link:

http://www.m-x.ca/f_publications_en/en.guide.options.pdf


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## leslie (May 25, 2009)

http://members.shaw.ca/retailinvestor/options.html


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## stinsont (May 29, 2009)

If this isn't the place to discuss options trading please point me in the right direction. I am eager to learn more about investment stategies. I am not the kind of person that wants to soley focus on one thing like say dividend stocks (as great as they are). I want to be able to use all tools available no matter how complicated they may be.


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## Rickson9 (Apr 9, 2009)

Spidey said:


> I disagree. There's very little in a companies financial statements that would teach you how to trade options. Options trading is usually considered a fairly sophisticated strategy and something that I've avoided so far. Many people successfully sell call options, which basically allows the purchaser to buy your stock at a higher price in the future. Most people do it for income and usually hope that their stock is not actually called. But you have to be prepared to sell it if it is called.
> 
> Recently Derek Foster is pushing selling put options. This is sort of the reverse. Someone pays you money to obligate you to buy their stock at a future date. The person usually pays you money as a form of insurance. In the event of a large crash, they are guaranteed a price for their stock. The seller of the put, on the other hand, often wants to buy the stock anyway, and figures they can collect the income and if necessary buy it at a lower price than today's value. (But you may have to buy at at a significantly high price than the future market value.)
> 
> That is just a nutshell explanation and there are many potential landmines that I haven't gotten into. If you are really interested, I would look for books on the topic at the library. For me, at this point of time, it's not my kind of investment.


You have your opinion and I have mine. I disagree with your aforementioned opinion as well.

Learning how to read financial statements has helped me to invest in a company's option contracts well.

Learning how to read financial statements has not helped you to invest in a company's option contracts well.

Does that make you feel better?


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## humble_pie (Jun 7, 2009)

... but we learn to walk before we can run, no ?

options are complicated, tricky little creatures. Unless you have a stable portfolio and a secure foundation as an investor in common stocks bonds & mutual funds it's probably best to ignore options for the time being.

but in the event you already have the SP and the SF, your broker will permit you to sell calls against your long stock, aka writing (or selling) covered calls.

no point in discussing this strategy here. Hundreds of others have already been there, done that. The montreal exchange freebie whose link i gave you does a splendid job. Other excellent teaching modules prepared by the US options clearing corporation can be found on the cboe website, or on the corporation's own website.

there are no perfect option discussion forums. For some reason the subject seems to attract the worst kind of board troll. What one is likely to find are either a bunch of amateurs flailing around, or else a board like yahoo finance that boasts a couple of powerful pro posters (one is a former CBOE pit trader) who are so flamed down by repulsive board trolls that every now and then yahoo has to shut this forum and take it completely off the website for toxic waste removal.

interactive brokers used to partially support a US options forum that was probably the best of the lot. Believe it was called elitetrader.com. Haven't looked in couple years, won't have time next 2 or 3 weeks to check it out again, so if i'm wrong i'm sorry.

imo experience is going to be the best teacher.


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## Spidey (May 11, 2009)

_Does that make you feel better? _

Rickson, I very much admire what you've done investing-wise. I've also looked at your investing strategy and find it interesting. I like examples of people who seem to be thinking "outside the box" and take a different path than the standard balanced portfolio. 

Unfortunately, for some people, success (and particularly early success) seems to be accompanied with a type of arrogance and condescending attitude towards others. Not a healthy personality trait, in my opinion and diminishes someone who I otherwise feel is a valuable member of the forum.


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## Rickson9 (Apr 9, 2009)

Spidey said:


> _Does that make you feel better? _
> 
> Rickson, I very much admire what you've done investing-wise. I've also looked at your investing strategy and find it interesting. I like examples of people who seem to be thinking "outside the box" and take a different path than the standard balanced portfolio.
> 
> Unfortunately, for some people, success (and particularly early success) seems to be accompanied with a type of arrogance and condescending attitude towards others. Not a healthy personality trait, in my opinion and diminishes someone who I otherwise feel is a valuable member of the forum.


You disagree with my assessment on what I feel is necessary to do well with option contracts, yet admit that you have avoided options and that they are not for you. 

I disagree with an individual's parenting techniques yet I have avoided having children and feel that they are not for me; this kind of logic makes sense to you?


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## Kirkland (Sep 15, 2009)

Theres a good book available on derivitives trading I read recently, it explains the models dealers use for options quite well. It's called Traders, Guns & Money (Nothing to do with guns, it's not a novel) I forget the author, but if you are serious about derivitives (options, etc) then this is something you'll be interested in reading. It also explained the Black & Scoles model and other such things.


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## Spidey (May 11, 2009)

_You disagree with my assessment on what I feel is necessary to do well with option contracts, yet admit that you have avoided options and that they are not for you. 

I disagree with an individual's parenting techniques yet I have avoided having children and feel that they are not for me; this kind of logic makes sense to you? _

I don't disagree that one should read the financial statements. All I've said was I've never found information in there that would be sufficient to educate the average investor on all the ins and outs of option trading.


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## humble_pie (Jun 7, 2009)

couple good options educational resources:

US online broker Tradeking's website offers a lot. Here are many educational blogs & videos plus one or more forums for all levels of options traders from beginner to advanced. Most of these appear to be free for site visitors, not just TK clients. The combination of ultra-low commish & obvious dedication to client education makes one wistful. But they don't have a canadian subsidiary & they are not allowed to sign up canadian resident clients.

http://www.tradeking.com/p/home/tradeking/education/learntotraderookies.tmpl


mark wolfinger is a former CBOE market-maker who now devotes himself to options education. He recently joined Tradeking as one of their online experts, so his articles & blog pieces will appear on TK's website above. In addition mark maintains his own blog:

http://blog.mdwoptions.com/options_for_rookies/2009/12/index.html

interesting factoid: wondering who owns/controls privately-held Tradeking, I turned up the info that investors are the bluest of the option world's blue. President is one Donato Montanaro, while major investors include OCA Ventures, the investment arm of the remaining partners who led O'Connor and Associates, a major CBOE founder and pioneer of standardized option trading, plus members of the Quick family, founders of the innovative brokerage Quick & Reilly.


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## leslie (May 25, 2009)

You are not going to get a lot of love if you treat responses that gave you exactly what you asked for with ...


stinsont said:


> If this isn't the place to discuss....


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## Rickson9 (Apr 9, 2009)

Determining the value of a company is a fundamental cornerstone of investing in options.

Even if an individual knew nothing about options, if they visited virtually any online financial site their first impression would be of a bunch of prices at a bunch of dates... 

http://finance.yahoo.com/q/op?s=BKE

If the same individual knew that a business was worth $10-$12 right now, learning options becomes fairly straightforward. 

Again, I'm speaking only for myself. Learning options may be more difficult for others who decide to avoid learning how to read financial statements.


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## stinsont (May 29, 2009)

Is it me or is this thread missing the Xmas spirit?

I certainly appreciate all the information that was shared regarding my post and did not mean to sound belittling or however it may have came across. Just looking for more information...


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## Rickson9 (Apr 9, 2009)

stinsont said:


> Is it me or is this thread missing the Xmas spirit?
> 
> I certainly appreciate all the information that was shared regarding my post and did not mean to sound belittling or however it may have came across. Just looking for more information...


happy holidays


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## stinsont (May 29, 2009)

Rickson9 said:


> happy holidays


ditto


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## moneymusing (Apr 3, 2009)

Rickson9 said:


> happy holidays


Merry Christmas!...that's right...I said Merry Christmas


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## cannon_fodder (Apr 3, 2009)

humble_pie said:


> 1) this is not the right forum for discussing options. Other than myself and possibly one other person, no other experienced option traders have come forward here in recent months.


It's like deja vu all over again.

I started a thread looking for info on options and the discussion quickly turned into a dissertation on why certain people won't trade options.

Of course, one new at the topic needs to be schooled in the risks otherwise (big) trouble may lay ahead.

What I've noticed is that there is no shortage of opinion offered on which stocks would be a good fit inside a portfolio and at what entry and exit price. If you have a brokerage account you quite likely have some detailed analyst reports available on top of what you can find on the internet.

But, what if I want to pick up TRP by selling puts and hoping that they get exercised (or at least help defray some of the costs by getting paid for the options)? I don't see analysts recommendation as to which contract to look at nor which price.

I love learning - but I also don't mind finding a quicker way to get the same pertinent knowledge.

Any chance you would create your own blog on options trading with real life Canadian examples?


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## stinsont (May 29, 2009)

cannon_fodder said:


> Any chance you would create your own blog on options trading with real life Canadian examples?


I would follow that blog!


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## Rickson9 (Apr 9, 2009)

What would be the benefit for Humble to do that?


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## humble_pie (Jun 7, 2009)

yes you're right it's didja voo all over again.

look, i pointed you & stinson in the right direction. I suggested more quality freebie net resources to both of you than you'll ever have time to read before the year 2009 ends.

but you've got to take that first step, not me. I don't have a business where i'm going to recommend one specific option over another. Especially not to strangers in the internet whose circumstances are unknown.

you see, fodder, you keep coming back to this forum and asking for exact specific option tips. Last time it was in teck, when you said you were long stock & wanted to sell calls. Now you demand to know which put you should sell in trp.

i'm not going to take anybody by the hand like a nursemaid & say sell this month/strike call or that month/strike put. You'll have to cross that abyss yourself. Look at the option chains. I find myself wondering if you even know what a whole option chain looks like. Study the variables i've already mentioned. Ask yourself how you will feel risking to lose tck.b at CAD $40, for example, or USD $40 if you sell a US call. Decide, as best you can, what you think about global copper markets and the short, medium and long-term outlook for metals demand from China. Examine details such as sizing, open interest and IV for each option. If you don't know what these terms mean, find out (now there's homework for you.) Pick out an option or 2 that you think might work for you. You could even go truly, madly, deeply crazy and actually buy or sell one. Just one. Strictly as a learning tool.

if you can't take this first proactive step, then options are not for you.

it's the old story. Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime.

btw if what you really want is a service that recommends exact specific option trades, there are many you could purchase. They are paid subscription services. I know nothing about them. I intend to continue knowing nothing about them.


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## cannon_fodder (Apr 3, 2009)

humble_pie said:


> yes you're right it's didja voo all over again.
> 
> look, i pointed you & stinson in the right direction. I suggested more quality freebie net resources to both of you than you'll ever have time to read before the year 2009 ends.
> 
> ...


From your perspective, I can understand your reaction. I obviously came across in a manner that was not clear. It was never my intention that my comment would have provoked you to express yourself in that way.

I was simply implying that there is a potential opportunity for YOU should you be interested in parlaying your knowledge into a service that could benefit others. You obviously are aware that some people have managed to turn a passion into an additional income stream by tapping into the desire for people to educate themselves where it comes to finances. (Nudge, nudge to CMF and MDJ.)

If you knew me, you would know that I analyze things to death and I do not accept blindly what anyone says. I tend to play devil's advocate no matter what the position is.

So, I will due my exhaustive due diligence and test the waters. I do appreciate that you have taken the time to respond to my posts. Considering how much detail you provided, even when you seemed to be "ticked off", shows you don't mind demonstrating some altruism.

Finally, I don't believe I asked for (especially "demanded") specific recommendations to my situation. I was looking for places where these types of discussions may take place because that often tends to provide multiple perspectives. Books tend to be biased and underrepresent opposing views. Industry analysts or subscription services are self serving.

Of course, you have the "option" of ignoring any further posts by myself or anyone else for that matter. I hope you don't curtail your participation because I think you add value to this forum.

Eating his own "humble pie",

CF


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## stinsont (May 29, 2009)

Rickson9 said:


> What would be the benefit for Humble to do that?


Hey, all I was saying was that if someone like HP wrote a blog on options I would read it. Thats all...sheesh.


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## humble_pie (Jun 7, 2009)

hello cf - the first thing is to find out from your broker which level option trading they will assign to you. At the beginning it's level 1 or level 2. Strategies at these levels are extremely limited. Selling puts, for example, usually requires a level 4 trader. So imo there is no point discussing put selling until a person is close to being able to execute this kind of trade.

i've glanced at trp, have not held or followed this for years. Not surprisingly for a mature and stable industry with limited growth prospects, option premiums are low, the IV is low. In fact lower than i would have expected.

probably better prospects in tck.b.


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## leslie (May 25, 2009)

> If someone wrote a blog on options I would read it.


 Blogs will not teach you what you need to know about trading options. By definition they are isolated topics that stand alone. Options are very complicated. You must learn one thing, before being taught the next thing, etc. The books and web educational sites we gave you do that. But you need a longer attention span.


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## OntFA (May 19, 2009)

stinsont said:


> If this isn't the place to discuss options trading please point me in the right direction. I am eager to learn more about investment stategies. I am not the kind of person that wants to soley focus on one thing like say dividend stocks (as great as they are). I want to be able to use all tools available no matter how complicated they may be.


The only other forum I read regularly is http://www.financialwebring.net/forum/index.php

That forum features some well known regulars all of whom are very knowledgeable, including a few pros like Norbert, tidal, Shakespeare, Norm and many others. There have been lengthy and lively debates over option strategies. In the process, readers can obtain a good overview of options and get referred to good books and articles.

While cannon fodder doesn't like that I said most people shouldn't invest in options, I stand by this opinion.

And I agree with Rickson for what it's worth. Whether you're buying stocks or options, you need to have some familiarity with financial statements so that you can have a grasp on a company's approximate value. Otherwise, how can you judge whether you want to buy or sell at the given strike price? You may not like the delivery of his message, but just focus on the message.


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