[NoSquigglyLines]

Hi All,

Been a lurker for quite a while on this site, mainly looking at futures day trading. I'm fairly comfortable with that side of things, trading in demo at the moment, just trying to build up experience and will be going live in the coming weeks/months dependent on other commitments.

'Other commitments' is really the reason for this post ... I have a pretty limited time available to me to day trade due to my job and timezone so have been thinking that I should try and do some swing trading too (as I have more time available when markets are closed/outwith RTH). I have pretty limited experience with options but it would seem to me that they offer a great deal of flexibility and are definately something that I should learn more about and try to utilise.

My question is this - How should I go about learning about options, and more importantly, pertinent strategies that can be used e.g. obviously they can be used as a kind of proxy for buying shares with standard TA, but is it worth learning the more advanced butterfly/condor/AN Other type strategies?

I've had a look at redoptions.com and thinkorswim, but there's so much information I'm not sure where to start and, as with so many online trading claims/products/services, I'm not sure what to believe.

Can anyone provide a concise guide on where to start and what to learn?

Thanks,
Al

[NoSquigglyLines]

I got some flak for this post in another thread, so I've apologised.

http://www.traderslaboratory.com/for...html#post53123

Apologies if this comes across as me saying "please give me the golden key to the magical kingdom for nothing".

All I was looking for was a sentence or two e.g. read about x, consider y. I'm going to be reading everything on the redoptions site anyway, but sometimes it helps to have a bit of personal experience or a few tips to try and limit some of the more obvious beginner mistakes.

I've got a lot of information from this forum so sorry to be causing offence here in only my first post.

[thrunner]

Try the Options Trading Beginner to start.

Daily Options Report
TraderFeed
Headline Charts
Quantifiable Edges
Condor Options
MarketSci
Don Fishback's Market Update
Market Rewind
The Big Picture
Abnormal Returns
Trader Mike
The Kirk Report
Random Roger
Infectious Greed
Information Arbitrage
Trader's Narrative
Putting the Pieces Together
Decline & Fall of Western Civilization
Afraid to Trade
Bespoke Investment Group
Cobra's Market View
The Aleph Blog
Chris Perruna
Bull Bear Trader
IBD Index
1Option
Options Doggy
OptionPundit
Simply Options Trading
The Volatility Soma
Options Trading Beginner

[james_gsx]

There are several great options blogs available, but will not really teach you in depth about options.

First a disclaimer: I trade options, and I will say that it truly is a fools game. But that doesn't stop me anyways. With options, don't let the idea that "unlimited profit and limited risk" fool you. In fact, those trades often make you the fool.

To start out, I would definitely learn about the more complex strategies. The reason is simple, you can use guys like the Option Addict and buy calls/puts on directional movements. But the problem arises when you get the move, and then price reverses against you. This will happen 90% of the time. For example, you see a triangle and anticipate a break to the downside so you buy a put. Price breaks the triangle and shoots south, your put more than doubles in value. A week later, price re-tests that breakout level - now that option is at a loss. This is very important to understand, and it took me a long time to figure out. Those easy trades where you load up on calls and puts, everyone else is doing that as well. You end up paying a premium, and IV starts to move higher - and moves higher again as price breaks out. When price goes back to retest, that IV gets crushed and so do your options.

To make sense of that rambling, the "complex" strategies like spreads make more sense. While the risk may seem outrageous compared to the profit, you must look at the probability of getting that profit. You have to be okay with smaller incremental profits - compared to a huge profit and 4 losers. Just like in futures, each trade will be different and will call for different setups. But after a while you'll get the hang of it.

If you want to get into options I suggest learning a few things:
Spreads (think or swims website is a GREAT educational resource for this)
Greeks - again, you can search just about anything to learn about them.
Screen time - you'll need to watch the options markets to get an idea how they work.

Also, elitetrader has some great threads on options if you do some decent searches. I can't really tell you what to search, but you will figure that out as you move along the learning curve.

In reality, options IMO will take much longer to fully understand than futures. But in the mean time, if you are competent with your understanding of price analysis then you can set up some strategies that work will with your risk to trade while you can't trade full time. But it will still take some time to learn.

[NoSquigglyLines]

Thanks James_gsx,

I must admit I can see it taking a while but I've started some preliminary reading. I do like the idea of the more complex strategies, been reading a bit about Iron Condors in particular. I think once I understand the theory and execution of these I will try to use my existing "knowledge" of price action as you pointed out and start to make some demo trades as a learning exercise. What appealed in the first place was the smaller more incremental profits i.e. consistent revenue/diversification with (so the adverts go anyway) just a small amount of time daily monitoring the trades. Of course, you have to go through the learning process first of all, but that's the case for everything in life.

The other option I have is signing up to a service like redoption or condoroptions and learn through their trades. Platform-wise I've TOS paper money and like it so far so I think we'll just see how it goes. The long and winding road ...

cheers for taking the time to post
Al

p.s. with your example of a triangle and a breakout - I was going to ask what stops you closing the position after the breakout ... why wait a week for it to retrace. Why not wait for it to hit a predetermined target and sell? If this is some basic options faux pas that I've yet to learn and the answer is obvious then just ignore it... I'll figure it out in due course, otherwise I'm interested to know the answer.

[jeffh0821]

altradelab,

I am in a similar position as you - getting my feet wet in the options game. I made the same observation as you just did in your last post. I think far too often people get caught up in the "unlimited profit, limited risk" notion of options and their premium and they start swinging for the fences. I have had modest success with strangles/straddles in this market - but with what I think is a small profit target. My trading system automatically exits a leg of a position when I hit the predefined target - no questions. That means I miss out on a lot of additional profit as the underlying moves for me - but I don't have the heartache when the underlying retraces and I lose that value + the loss of time value.

I'm still experimenting with a very tiny sandbox account and some paper trades. Real basic strategies right now: strangles, straddles and what I call "biased" straddles. Basically I set up a straddle where the ratio of call to puts indicates my bias towards a certain movement in the underlying. If the movement goes my way I generally get profit accumulation faster than if was to move against me - but in either case I have a small profit target and take it as soon as it is hit.

Perhaps some others have better advice or methods to learn options trading. I'm certainly open to suggestions.

- Jeff

[NoSquigglyLines]

jeffh0821,

Thanks for your post. I've been a bit involved with my futures trading of late and haven't spent as much time on this as I'd like. However, will be building this up in the first half of the year and will see where I get to.

Hopefully I can add some observations on this thread further down the line.

[zdo]

altradelab,

Who makes money? - the insurance company or the policy holder?
I played the ‘fools game’ in options until an old coot pulled me aside one day back in ’89 at one of Pruden’s SF meetings and convinced me never to buy premium again.

Rather than learning all the insects, birds, and other option creatures, imo it is better to just simply learn how to sell premium into net delta close to zero and from there learn how to bias and hedge your position for trends and swings, etc. Bear in mind, the zero net delta is like the footing / foundation – which needs to be sound – but the ‘living’ dynamic, utilized part is the biased structure built on top of it.

It’s not very exciting. Laying traps for suckers is a patient, boring, lowered leverage activity compared to the thrills of trying to outsmart all the Greeks at once / avoid being one of the suckers.

I'm aware this is probably not the kind of information you were looking for but with options we really don't really have many options for actually making money on a consistent basis...