Lux Investing
Where do I start out with options?
I'm a finance major but I understand so little about options. I understand the concept of them, however, I have no idea how to look for options to invest in. Yes, I understand that if I'm asking this question that options are most likely something I should avoid, but I'd still like to know some info. How does one go about sizing up what are potentially good options or not? Is there a nice starting off point with how to invest in options?
Public Comments
- Here are two good websites for information on options: http://www.888options.com/basics/default.jsp http://www.optiontradingpedia.com
- <<<Where do I start out with options?>>> My recommendation is that you start with the free educational material at one or two free internet sites. My recommendations are http://www.cboe.com/LearnCenter/default.aspx and http://www.optionseducation.org/ These will teach you the fundamentals of working with options and some of the terminology, but will not really teach you how to trade. From there, I recommend you read at least one good book on options. "Option Volatility & Pricing" by Sheldon Natenberg and "Options as a Strategic Investment" by Lawrence McMillan would be good choices. While reading those you probably want to start doing some paper trading on a virtual exchange. <<<How does one go about sizing up what are potentially good options or not?>>> There are probably nearly as many different answers to that question as there are option traders. Some people like to trade straddles and strangles across earnings. These people tend to look at how the stock reacted to past earnings reports to estimate how much it will react to the next earnings. Some people prefer to try to make money from the premiums they get from selling options. They tend to look for options where the implied volatility has been raised by unrealistic expectations, either good or bad. Some people like to buy LEAPS (long term options) as a substitute for a stock position. These people primarily look at the fundimentals of the underlying security. Successful option traders almost always look for options that have an implied volatility value they believe is too high or too low and try to make money based on that belief. <<<Is there a nice starting off point with how to invest in options?>>> If you want to trade expiration straddles, you may want to start with an expiration calendar to determine when companies will release earnings. If you want to profit from premiums you have collected, you may want to start with recent news stories. If you want to use LEAPS as substitues for stock positions, you want to start out with fundimental analysis of the a company's financials and prospects.
