An option Syllabus

SpeakingGreek had some interesting comments/questions. They are worth sharing because it brings up one essential part of an options education:

I was imagining to leverage your great audience (is it the largest among Options Blogs?) to come up with some sort of Syllabus, using POLLs.

Examples (simplified):
– Sort these options strategies based on level of difficulty for you to understand: Buy Put, Sell Call,…..Diagonal Spread…..

– Which Options Strategy/ies were you most successful with so far? Buy Put, Sell Call,…..Diagonal Spread…..

– Sort these asset classes as good candidates for options trading (Simplicity, Less Risk): Dividend paying Stocks, Tech Stocks, ETF’s, SPY, DJIA, UUP….

– Sort these options strategies in the order you recommend others to learn: Buy Put, Sell Call,…..Diagonal Spread…..

– Which of these was your first Rookie error: Selling instead of buying (or vice versa), Volatility crush, waiting to get that last dime…..

Another suggestion: ask readers to come up with POLL ideas. If you collect these polls under a category, after a while they will become a great source of compact information online for options traders. It is like an investment that will grow and add to your readership.

There is too much information in the world. The problem is how to filter the good info, summarize them and prioritize learning them.

Thank you for the wonderful blog (I am a follower for 3 years now).

My audience is not the largest, but it is among the top few. Thank you for the compliment.

Polls are ineffective

A blog is designed to be quickly consumed by readers who prefer not to spend extra time with anything.

Thank you for being a long-time follower. While I agree that polls that attract a large response can become meaningful, the questions must be well constructed. I note that some of your suggestions are diametrically opposed to my views, and will try to explain why that is so.

What I don’t understand is why you want the answers to these questions. If you took a poll and learned that 85% said that buying options is the easiest strategy to understand (and I believe it is), would you become an option buyer? I’m seriously asking that question of you. If the answer is not a firm ‘yes,’ then what would you expect to learn by asking the question?

My feeling is that different people learn things at different rates. More than that, the idea of selling anything not already owned is so foreign to a significant portion of any audience, that many investors cannot conceive of the idea of selling options. All by itself that tells me that votes concerning ‘selling’ anything would be artificially low. It takes a more sophisticated options trader to consider selling as a strategy.

My feeling is that polls of this nature serve no purpose. But the real reason why I chose to elaborate on my response is that this type of question can lead to traders making serious mistakes.

I conceive of some unhappy trader who is not making money. He/she is looking for a way to become profitable. Rather than take the time to read, study, or further an education, that trader decides to do whatever it is that most winning traders do. Of course, not knowing just what that is, a poll is taken and the results dictate future trade policy for the unhappy trader. Isn’t that foolish?

Reasons to ignore such polls. When you poll a general audience, you don’t know

  • Who responded
  • How long they have been trading
  • Whether the trades were managed, or just opened and arbitrarily held through expiration
  • How honest the poll taker is in reporting results
  • How much money is involved. If someone says the best results came from a given strategy, it may be a gain of 0.01% because all other strategies lost money

In my opinion, you need a lot more background information about the trader’s history than about which trade he/she liked or found easy to learn.

I hope that you want to trade strategies that are comfortable for you. Those are strategies that you understand, know how to manage, and have no difficulty when setting profit and loss targets (a loss target is essentially a stop loss). You want a strategy that suits your skills. Why would you buy options if you do not have a proven track record of being able to pick winners on a consistent basis? Why would you sell naked options if you panic when the stock moves 1% against the trade? Why would you take risk when you know it keeps you awake at night.

You want to know what is suitable to you, not to a bunch of strangers. Please tell me that you agree.

Learn about strategies

Practice them and discover which are well suited to your trading preferences and risk tolerance.

It does not matter what anyone else does. I know that my opinion on this is difficult to accept. But if I tell you that my biggest gains came when I sold thousands of options naked short, would that make one iota of difference to you? You would (should) never want to adopt that strategy.

That’s my point of view. I’m sorry that I cannot accommodate your request for polls. I know the response will be small, but more importantly, these specific questions/answers offer nothing of value.

But thanks for asking.

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