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The Rookie’s Guide is now an eBook

I’ve been asked to do it many times, and I am happy to announce that the Rookie’s Guide to Options, 2nd edition is available in eBook format.

At this time, the only versions available are Kindle and pdf.

The new eBook and the paperback version were updated (minor changes) Sept 11, 2014.

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New Focus for the New Year

Welcome to 2014. It’s time for something new at Options for Rookies.

I can no longer post a daily lesson because I have run out of ideas. However, please feel free to submit a question (in the ‘Comments’ below), and the response may turn into a mini-lesson.

The focus of this blog is now going to involve

  • Replying to questions
  • Discussions of the several books that I plan to write this year
  • Tidbits about my trading activity when I believe it would be of interest

Lower Prices

Two of my ebooks (Kindle format) are now $3.99 at Amazon.com (reduced from $9.97).

Other ebooks

Pearson published two other e-books that are available at Amazon.com

Important note: Why Trade Options? is for people who know nothing about options. It discusses why anyone may want to use options and is not intended for any regular reader of this blog.

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Stock Options: White Hats or Black?

Remember early TV days when the 'good guys' wore white hats and the 'bad guys' wore black?  It was easy to tell them apart.  Today, the white hats of the investment world are seen as wearing black hats by far too many.  Options.  Those are the good guys.

White hats

This post was first published at The Options Zone.

The word
‘options’ evokes a negative emotional response from people who never use them,
don’t understand how they work, and who prefer to remain in the dark.  Many investors truly believe that options are
risky investment tools, used only by high-rollers.  Thus, they make no effort to see ‘what all the
fuss is about.’  Surely they know that
huge numbers (several billion per year) of options trade, but they have no
curiosity.  Why?   I’d guess that an uneducated broker once
told them that options are ‘dangerous’ and are too complicated for the
individual investor to understand.  The
truth is that those stockbrokers were unwilling to learn, and provided a
disservice to their clients.

Today, the
world is more efficient, with useful information (along with misinformation and
hype, so please be careful) all over the Internet.  Options Zone is a safe place to learn about
options, and that’s the reason I accepted an invitation to participate.


Those of
us who understand how options work reap the benefits.  Those who prefer ignorance, must trade with
much more risk than necessary.  For most
investors, bull markets provide profits and bear markets bring the realization
that investing is not a gimmie.
Options are unique.   

The
first obvious difference between options and other investments is their limited
lifetime.  However, the most important
feature of options – the one that makes it an indispensable investment tool –
is that options allow an investor/trader to measure and manage risk. 

  • If you choose not to be hurt during a bear
    market, you can own insurance against large losses
  • If you prefer to use leverage, you can attempt
    to turn a small investment into many times that amount.  This is the ‘gambling’ aspect of options
    that I don’t recommend – but it’s your money and you make the decisions
  • You can own an option position that benefits
    when specific stocks, or indexes, trade in a narrow range.  Or you can own a different position that
    earns money when a specific stock moves much higher or lower
  • Whatever your outlook for the market – bullish,
    bearish, neutral – there is a hedged options trade that earns a profit if
    your outlook becomes reality.  NOTE:  This sentence is not what the hypesters say.  Their line is 'you an make money in any market.'  Sure, but you have to be correct in your forecast.  You cannot take a bullish stance and expect to profit when the market crashes
  • The bottom line is that each of these objectives
    can be attained with limited risk.  There’s
    no need to invest large sums to buy stock. 
    Options can be used to meet the needs of anyone who trades stock,
    commodities etc.

When you
own options, the passage of time is your enemy. 
But you can earn a profit when your prediction comes true.  By hedging the trade and accepting a limit on
profits, ‘time’ risk can be cut considerably. 
When selling options, you earn profits as time passes.  However, other risk factors make this idea
too risky for most investors. Again, by hedging and accepting a smaller limit
on possible profits, that risk can be cut dramatically.

My
purpose today is not to compare the advantages or disadvantages of adopting
various option strategies.  Instead it’s
to point out that you can measure, and reduce, the risk of investing.  That’s why options are special and worth the
time to understand how they work.

More
experienced option traders know better than to try to make money by constantly
buying or selling options and predicting how the market will move.  They understand how difficult it is for the
vast majority to have an inkling of what’s coming next in the stock markets of
the world.

These
investors trade spreads, or reduced-risk, hedged positions.  I’ve discussed the best features of
some basic spreads and explained how to benefit by adopting them (see 'categories' in the right-hand column).

Today,
the idea is to help option rookies understand that options are used to hedge
trades – on a continuing basis – to reduce risk.  Note: options are not perfect.  If you want the combination of zero risk and guaranteed
profits, you are living on the wrong planet.

One
example is the popular strategy: covered call writing.  Investors earn profits when the underlying
stock moves higher, holds steady, or declines by a small amount.  It’s very popular among new option traders,
but serious, experienced investors also use this method.  In fact, there are mutual funds dedicated to
writing covered calls.  The point to be
made is that this method comes with risk. 
If the market tumbles, covered call writers perform better than those
who simply buy and hold the same stocks. 
But, by using options judiciously, risk can be reduced even
further.  By varying the specific options
traded, the covered call writer can enhance the upside or gain additional
protection against a downside move. 
Options are versatile investment tools.

Option
strategies can be used to reduce risk and enhance the probability of earning a
profit.  The profits may be limited, but
the combination of more winning trades and smaller losses is appealing.  Only options can do that for an individual investor.

660

Lessons_Cover_final Are you a fan of Options for Rookies?  Have you benefited by reading
this blog?  Are you one of the many readers who has sent congratulations
and thank you messages for proving valuable content? 

I thank you for the kind words of encouragement.

 


  Buy Now

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Believe it: You Always Have Something to Learn

Thanks to a heads-up from Tadas at Abnormal Returns, I found a post with such good advice that I had to pass it along.  This is one of those situations in which I recognize my own failings.   Had I paid more attention to this idea, I know it would have made a huge difference.  I'm passing it along with the hope that readers take this seriously.

David V, at CSS Analytics, subtitles his blog: Use Quantitative Research to Beat the Market. Under normal circumstances, I'd look at that title and move on because I believe it so difficult for anyone to consistently beat the market.

But this post is special to me because it focuses on education.  It also reminds me that I failed to do that hard work, that I failed to strive for greatness and that I took the easy road.  Not everyone has the drive or skills to rise to the top.  But if are talented and diligent, believe these ideas, and truly work at continuing to learn – throughout your lifetime – then the potential rewards are available to you.  If you take the lazy approach, you may do well or you may fail miserably. 

David's path is not easy, but do the rewards justify the effort?  That's your personal decision.  But I know that it's worth your time to read the entire post, but here are some excerpts:

The intelligent person will start out in any given field–whether music,
athletics or academics–as a student of those who are more experienced or
talented. Through the course of “10,000 hours of practice” and a lot of
guided learning, these same students will likely emerge as “experts” in
their field (assuming they have enough talent).

The reality is that they have to always try to improve to avoid
falling behind.

The same thing applies to trading. Big money managers compete against
other money managers, traders compete against other traders. Just when
you think you are good, look out because someone better than you is just
around the corner. You have to always work hard, and try to be one step
ahead–otherwise my friend you are going to fall behind.

Michael Jordan was Michael Jordan because of all of that–and no one ever
hears or talks about the more talented players that never made it
because they were lazy.

For this reason, you are never an expert. No matter how good you are, or
how good other people say you are, it really doesn’t matter. Always
think of yourself as a student–someone who always has something to
learn. You must absorb as much as you can from other experts, and even
question their root assumptions.  Once you become the expert, you have
to learn to question your own root assumptions–because the only people
you speak  to most often are looking for answers.
Those who
never question will not only never find the answers, but they will also
fail to truly understand how things work. This framework has been the
foundation for all scientific progress.

People with lesser knowledge and skills can easily surpass you through
sheer discipline and constant work ethic. You need to know what to do,
and you need to actually do it for”10,000 hours” to really absorb the
knowledge you have accumulated. If you haven’t done or are unwilling to
do that then as a trader you are going to have to mechanize your
trading–because no matter how much you know about the markets, you still
have to know how to manage yourself just as much to succeed.

It's never too late.

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My 33 years as an options Trader.  In Lessons of Lifetime, I share some of the ideas I've learned through the years, including my philosophy of trading and how I look at trading, positions, risk management, record keeping etc.

The ebook will be launching within one week, as I'm still in the editing phase.

Lessons of a Lifetime: My 33 Years as an Options Trader is approximately 18,000 words in which I share some of the ideas I've learned through the
years.  that includes my trading philosophy and how I look at trading,
positions, risk management, record keeping etc.

Note:  eBook only; no hard copy available.

Lessons_Cover_final

Buy Now

Price: $12.

Order now – before the official launch date, and pay only $10.

I'll notify you when book is ready for download.

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Get Ready! Get Set! Go!

 A recent poll shows that about 10% of visitors have not yet made their first option trade.  I believe in taking your time and being sure you understand what you are attempting to accomplish (other than 'make money') with each trade.

In an effort to nudge those of you who remain sitting on the fence to have enough confidence to get started, I've decided to make the e-book version of The Short Book on Options (2002) available. 

As an incentive to take that first step, I set the price at a low level.

It's $3.50 (via PayPal).

If you'd like to see what the book discusses, here's the Table of Contents

If you click on the 'add to cart' button, you'll be taken to a page that leads to PayPal.

Add to Cart

On your marks! 

Get ready!  It's easy to understand how an option works.

Get Set!  Read, ask questions.

Go!  Trade (Virtual or real).

Get set. go

The race has begun.  Are you in? Are you ready to protect your assets?


The Short Book is a very basic primer.  It covers far less material than the Rookie's Guide to Options and is very easy to understand.  The book is limited to a single topic – covered call writing.  Those of you who believe that options may be just 'too complicated' will see that options are fairly simple items – and that you have been using them in your everyday lives for many years.  The strategies may feel a bit complex, but options are uncomplicated.

Thinking that such a learning experience will encourage you to get started – even if it's only with a practice account (and I do recommend paper trading, if for no other reason than to become familiar with your broker's trading platform), I'm making the e-book version book readily available. 

Get ready to learn.  Get set to lose your fear.  Go, but please, don't get overly excited and begin using options to gamble.

Reading this introductory book should encourage the more hesitant among you to discover that the whole concept of how options work is truly uncomplicated.  There are very complicated strategies you can use, but there is no reason you to be concerned about that.  There are enough plain vanilla strategies to satisfy almost every investor.

This is important:  If you own, or have read, The Rookie's Guide to Options, DO NOT buy this book if you are seeking additional education.  The newer book has a very expanded discussion of the same topic,  plus a whole lot more.  If you decide to read the Short Book, it should be for further clarification on the basic idea of beginning to use options.

The Short Book on Options e-book is only $3.50.  There's nothing I can do to offer the paperback version at a better price than amazon.com.

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Introduction to Stock Options: The Basics. Free eBook

For readers who are truly rookies,
or for readers who feel they don’t quite understand options as well as they
believe they should, I’ve prepared a free eBook that covers the basic concepts
of stock options. You’ll learn that
options are not complicated investment tools. It’s true that you can use options in complex strategies, but the basic
idea of what an option is and how an option works are easy to understand.

 

The book is entitled: Introduction to Stock Options: The
Basics
and you may download a copy at no cost.

There’s no need to register and
you have permission to distribute a copy to anyone you choose. Stock options can be beneficial to a great
many investors, and the purpose of this web site is to encourage people to take
the time to understand how conservative option strategies can increase any
investor’s chances of earning a steady profit over the years.

If you like the material
presented in this blog, please send the URL (https://blog.mdwoptions.com/options_for_rookies/)
to others.

 

As a reminder, another free
eBook is available. It’s a sampler version of my recent
book: The Rookie’s Guide to Options: The Beginner’s Handbook of Trading
Equity Options
. The book covers six basic option strategies – in detail. It not only teaches you how to place the
trades, but more importantly, it describes methods for managing risk.

  •  Writing covered
    calls
  •  Collars
  •  Writing
    cash-secured naked puts
  •  Credit spreads
  •  Iron Condors
  •  Double Diagonal
    spreads
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