for you options traders....

[Flasch186]

I was thinking of dabbling in it...

what is the best site for options trading? Any favorites?

Any warnings? success stories? crash stories?

thanks in advance!

[headtrauma]

I was thinking of dabbling in it...

what is the best site for options trading? Any favorites?

Any warnings? success stories? crash stories?

thanks in advance!

Here's hoping you're merely "dabbling" in it.

My general advice (which I'm too lazy to write support for at the moment) is "don't do it."

If you're hell-bent on it, here are a couple of suggestions:

1. Learn the concept of "time value decay."
2. Don't allocate more than 5% of your investing funds to options...and even that's heavy (and I consider myself a fairly aggressive investor).

[Crapshoot]

Don't. Best advice I can give you. The quickest way to lose a fortune is to dabble in a market you don't understand, and options are not something you can fundamentally understand very quickly. My old boss used to tell me that we looked forward to every idiot who thought he could make easy money in the field, because they provided the cushion for the rest of us.

[Flasch186]

This makes sense:

Time Decay

Time decay is a crucial component traders consider when deciding when/where to buy sell options. Time decay can be represented by a Greek term know as Theta. Don't worry too much about the Greeks for now, we will take a look at Option Pricing and Greeks a little later.

As we saw from the previous article on Extrinsic Value (also known as Time Value), we saw that an options time to maturity (or time to expiration) has a huge impact on the price of the option. That is, as the option moves closer to expiry (i.e. running out of time) its chances of becoming more profitable decrease with every day. As you can probably imagine, predicting an approximate stock price becomes easier every day. For example, you will have a much greater chance of predicting tomorrows closing price for Microsoft than you will of predicting next Fridays closing price.

Because of this, the Time Value of an option decreases exponentially as the maturity date approaches - especially as the time to maturity passes the 30 day mark. Below is what the theoretical value of an option looks like as time passes.

time-decay

As you can see, after the 30 day mark, an option will begin to lose its extrinsic value quite rapidly. For out-of-the-money options this is key, as the entire option is made up of Extrinsic Value.

So, it stands to reason that you would not really want to go out buying a lot of options with less than 30 days to expiry (all other things being equal), unless you had strong convictions about the direction of a stock price - or you just might happen to be the person that likes a good bet.

Although these ideas are classic option trading fundamentals, not every body shares the above opinion of time value trading. David Rivera, author of the ebook called "Option Trading Secrets", takes an alternative view to time decay trading. David says that you can actually profit by buying options with more time decay, as long as you sell another type of option to give you can edge.

David's approach is very unique and throws a little spanner into traditional option thinking. OptionTradingSecrets is a great investment if you plan on trading options based off time decay advantages.

David also has a free newsletter that you can sign up to. He frequently provides free option trading picks based off his unique method. You can sign up for free at DeltaNeutralTrading.


but ill admit that this is quite daunting.

Obviously, from other threads you can see that I dabble in the buying and selling of stocks in full, and have been somewhat successful but I feel/felt that im missing an opportunity.

The likelihood is I wont do it BECAUSE on a call option I wouldnt have the money to complete the transaction anyways which seems to be the BIG BIG hurdle at the moment, although I assume I could do it on credit BUT I avoid borrowing.

[Flasch186]

Don't. Best advice I can give you. The quickest way to lose a fortune is to dabble in a market you don't understand, and options are not something you can fundamentally understand very quickly. My old boss used to tell me that we looked forward to every idiot who thought he could make easy money in the field, because they provided the cushion for the rest of us.

hmm, thanks....I guess I wont :) I bought Cisco at a recent low, been riding Sirius and doges out of Gamestop most recently at its high. Im looking at ~6500 to get back in with but I missed today's bounce and hope for a little more fall before buying something like EMC, DSX (which I love its volatility), or WCG (which is staring the FEDS in the face but I think they'll settle out and be fine)....

anyways, I guess options is not a risk worth taking.

[headtrauma]

My best advice for anyone who's buying individual stocks is to read The Intelligent Investor by Benjamin Graham (current versions contain commentary by Jason Zweig). It was written decades ago, but the fundamentals of investing haven't changed since then.

[Logan]

Great book.

[st.cronin]

Options trading is a horrible, horrible idea for an amateur. Go to vegas and play craps instead. You'll have more fun, and probably lose less money.

[damnMikeBrown]

Best way to make a small fortune in options....is to start with a large fortune.

[SCgoatman]

My best advice for anyone who's buying individual stocks is to read The Intelligent Investor by Benjamin Graham (current versions contain commentary by Jason Zweig). It was written decades ago, but the fundamentals of investing haven't changed since then.

wow. I've lurked here for over 4 years with no intention of ever posting, but I had to register solely to second this recommendation. You shouldn't buy stocks until you have read this. Regarding options, I'm not a big fan, but I think for a value investor they can have their place - specifically on when selling covered calls. Beyond that, for the inexperienced, it's basically just another form of legalized gambling. Now I love online poker, but understand what you're getting involved in.