About this blog: Options for Rookies

My mission is to help each reader gain a better understanding of concepts related to options. I share my thoughts and also turn to others for good ideas that are worthy of a blog post. I frequently write a post in reply to your questions. If you have something to ask, please do so as a comment below. Each is a part of helping option rookies understand more about options.

There’s only so much that can be learned from reading blogs. They add to, but do not replace more traditional education methods. I blog on a variety of topics (see ‘Categories’ in right sidebar) related to options education. Due to the nature of blogging, each post usually stands on its own. However, I occasionally post a series on a single topic.

Not every post is directed to the rookie trader. One primary reason is that the term ‘rookie’ can apply to everyone from a true beginner with no previous options experience to the trader who has been using options for years but who cannot seem to earn any money or who doesn’t really understand the nature of options and how to use them to his/her best advantage.

Some of the topics we discuss at Options for Rookies

  • Option trading
  • Option strategies
  • Risk management and why it is so important
  • Topics requested by readers
  • Replying to questions of general interest
  • Sharing my investment philosophy
  • The opinions and points of view from other bloggers (not always from the options world)

 

Good decisions

When you understand the principles behind trading and can think clearly – that’s when you should be able to make good trade decisions. It’s not always easy because sometimes there is pressure to make an immediate decision – especially when the market is making a good-sized move at the opening of the trading day. As I write this (Saturday), it appears that will be the situation when this is published. On Sunday night, index futures are much calmer

In turn, those good decisions, especially when the market is not going according to (your) plan, increases the likelihood of your having a long and successful trading career.

Concerned with capital preservation?

At Options for Rookies, we live and breathe risk management. I stress the importance of controlling risk from the very beginning of your trading career. This topic is not only suitable for experienced traders. Why?

If you trade without measuring and controlling risk, the risk of ruin is too high. Don’t count on a lengthy trading career when being aware of, and respecting, risk is not at the TOP of your priority list.

When dealing with the stock market in any capacity, you are dealing with statistics. That must awaken each trader to the possibility that very unexpected events are going to happen when they are not expected. Perhaps not too frequently, but often enough that you must be aware of risk and a worst case scenario. Your primary job as a trader is to stay in the game. Making money is the goal, but it is not the primary objective. Take too much risk – seeking beautiful rewards – and there’s the chance that your account will not survive. Don’t allow overconfidence to get in the way of common sense.

Being aware of the probabilities of winning and losing, how much may be gained or lost, and trading only when you have an edge – such as when the reward justifies the risk – represents a necessary skill for the successful trader. We always want to be trading and have some action – but survival and prosperity, not excitement, are your goals.

Is that it?

Alas, no.

Paying attention to risk and making good decisions are essential, but not sufficient. It’s important to understand how options work, why people buy and sell options, and the underlying causes for option prices to move higher and lower. It’s all part of a solid options education.

Coming April 1, 2011

888

4 Responses to About this blog: Options for Rookies

  1. Libor 01/31/2011 at 10:08 AM #

    Hi Mark,
    I enjoy reading your blog for quite some time now. I’m very glad I have found it as it helped me clarify a lot of things regarding options. So thank you for that education a lot.

    Because I wanted to know more details especially for risk management and proper trade execution I recently bought your two books “Create your own hedge fund” and “Rookie’s Guide to Options”. In both books you are explaining conservative strategies as Covered Call, Collar and Writing Cash Secured Put.

    I’m trying to test them via Paper trading. However I would like to ask you something related to Cash secured puts. When you enter this trade you are bullish in its expectancy of market move. As with covered call you are carrying significant risk when market goes down.

    One way to protect against such “big” loss seems to me might be to enter vertical bull spread instead. I guess this will be somehow counterpart of collar for call side. I’m wondering why such strategy is not listed in the conservative list of strategies. Is it because it is not income efficient or I’m I missing some other point?

    Based on stated above I have “tested” such approach last Friday on weekly option with Ford stocks (Friday close price 16.27). I have sold “Feb 4, 16P” for 0.16 and bought protection “Feb 4, 15P” for 0.03 (i.e. net credit 0.13 which is 0.8% of 16 strike price with DP 15.87 for week). In theory for a month I can get 3.2% ROI on weekly – I know this is ideal thinking but much better return than regular monthly option approach. On monthly Feb 18 and same strike bull spread I would get 0.27 credit – all related to Friday prices). If I use necked put on Feb 18, then I would select 15P for 0.15 due better DP – 1.15USD.

    Do you think I’m picking only “penny/dimes” on this approach? Do I risk too much from your point of view? Additional question related to it. Is it good to use weeklys on collar/covered call/cash secured put strategy (I’m using IB so commissions on trade are not that significant to overall trade price) – my thinking about weekly is to address possible steady declining market which makes “proportionally” less move over week than over month?

    Many thanks for your comments on above listed questions and wish you luck in next move with “Options for Rookies”.

    Regards,
    Libor

    • Mark D Wolfinger 01/31/2011 at 10:22 AM #

      Libor,

      Thanks for the comments.

      Your question is important and I will reply in full via a blog post. Probably Wed, Feb 2, 2011

      Regards

  2. Gus 01/31/2011 at 12:00 PM #

    Weeklys are good for IC if the underlying doesn’t move. A nice quick buck that kills the urge of overtrading (no time). The problem is when the underlying moves, even a 1% move will make the position look really bad…suggestion: trade weeklys using a very small part of your portfolio or if you have the ability to determine market direction, don’t trade an IC just a bull or bear credit spread depending on your bias.

    • Mark D Wolfinger 01/31/2011 at 12:07 PM #

      Gus,
      Size is always key. I agree

      These Weeklys are so tempting because time is so short. As always, those juicy returns come with higher risk.