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Trading Stock Options: Basic Option Trading Strategies and How to Use Them to Profit in Any Market Paperback – November 15, 2009
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The world of options opens up a number of techniques that can be implemented in order to increase your rate of return as well as mitigate risk. There are endless hedging possibilities and new strategies are being developed all the time. Through my experiences with option trading, I have tried almost every strategy that I could find. In this book, I will be discussing the strategies that I use the most and feel are the best available. I will take you through a number of actual trades as they occurred and show you what I did right and what I did wrong. I will also show you plenty of theoretical examples of how the strategies work and what factors will influence which strategy is the best for whatever situation the market throws in front of you.
Initially, before trading options, I was a "stock only" trader who was just curious about alternative investment products. I had often heard stock options mentioned, usually in the form of Employee Stock Options. I began to learn as much as I could about option trading and testing the strategies as I learned them. In 2007 I was the first place finisher in the Zacks.com 4th Quarter 2007 options trading contest with a return of 212%. I currently trade options as a speculative tool as well as a way to hedge my risks on the individual stocks that I own. It hasn't always been pretty but I have used both my gains and my losses to learn, both of which I'll be discussing with you. Often options get a bad reputation from the potential losses that can occur from owning options as well as selling what are called "naked" puts and calls. These topics will be covered in detail later but the important thing to remember is that the less you know about an investment the more risk you are tackling. Any investment product in the market can potentially cause large losses if the investor does not fully understand the risk he or she is taking on.
Once you gain some familiarity with options, I would advise you to paper trade option strategies for at least six months. Paper trading is a valuable tool; it will get you involved in the market and allow you to start following the individual stocks that you will be trading the options of. As with any investment tool, options may not be for everyone. The potential for large losses is real and should be evaluated. I would also advise any investor to use no more than 5% of their available investment portfolio in options. This is because many of the option strategies are considered speculative. As with any investment, if there are large gains to be made there are also large losses to be had.
Even with the dangers in mind, I will show you how to calculate your risks ahead of time. What investors often fail to understand about options is that, if correctly implemented, options can, in fact, carry less risk than some stock. There are plenty of option strategies that are specifically tailored to lower an investor's risk profile. Options can be used to generate income and can be used as a form of insurance against the stocks that you own in your portfolio.
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Top Customer Reviews
Chapter 1 is a basic introduction to options and Burns keeps it simple so any investor should come away with a basic knowledge of the subject. Chapter 2 is a brief overview of options pricing and the Greeks.
Chapter 3 is the bulk of the book and covers actual trading examples and strategies. The reader will follow step by step how to make covered calls, long calls, long puts, straddles, strangles and writing puts. New options traders are not going to be ready to make actual trades but can certainly begin paper trading to get a feel for what they don't yet know.
At under 200 pages, this is the best introduction to options trading I have found. I highly recommend this for new traders.
P.S. I would probably have given this a 4.7 stars instead of five because of a couple of minor mispellings if the choice had been available.
1). A basic introduction to options.
2). He explains the basics of the Greeks that define an optio's value.
3). He explains all the major option strategies, the long call, long put, along with the straddle, and strangle, and selling of puts for profits.
I like that the author explains these strategies not through theory but by sharing his actual trades in most instances, both his wins and losses and his thinking based on their charts.
Some of the key lessons contained in this book:
Define the maximum loss of all trades before you trade them.
Understand the accelerated time decay of options in their last month before you trade them.
In options you not only have to be right about direction but also right about the time frame.
Only use 5% of your available investment account for option speculation.
Play long calls in up trending markets.
Let the market decide when the trend changes.
I highly recommend this book for new option traders, Brian Burns, nails all the basics.
Most Recent Customer Reviews
This book isn't a complete waste of time, but your time would be better spent elsewhere. If you want a great intro to options, I strongly believe you should check out Guy Cohen's... Read morePublished on November 10, 2012 by P. Kneeland
This is not even a book. It is so simple that you can find the same info with a few quick Google searches. Read morePublished on December 3, 2011 by Shop Wise
I have been reading about options and strategies online for months but they were all theoretical. This book puts the strategies into practice and it was great to see real life... Read morePublished on March 12, 2011 by Hyena handler