Options Education For The Individual Investor

How does the individual investor/trader learn about options?  Many traditional brokers make no effort to help clients.  Most financial columnists (with few exceptions) who write about the stock market, avoid options like the plague.  Financial planners either don't understand how options work, or choose not to tell their clients about options.

Some discount brokers make a real effort to attract investors who use  options and advertise to attract option traders: For example, TD Ameritrade, E*Trade, Fidelity and Schwab.

Several excellent brokerage firms specialize in options trading: Thinkorswim, OptionsXpress, TradeKing, to name a few.

There are a bunch of bloggers who are passionate about options and write about various aspects of option trading.  They provide good, useful information.  But people who find these blogs already know that options exist and are searching for additional information.

I know I must get over it, but so many people suffered large losses in 2008 when stock markets plummeted.  One could argue that these unhedged investors reaped the rewards during the good times, and if they do poorly during bad times, then things are simply being equalized.  But I wish I could have explained to each and every one of these people that they would be better off today had they adopted conservative strategies that help preserve the value of a stock market portfolio from  the ravages of extreme market volatility.

The best we can do is to help educate those who are willing to learn and accept the fact that there's nothing to be done about the majority who depend on advisers and planners – people who provide little useful help.

'Options education for Individual investors.'  That's my business. That's the tagline for my website.  That's my objective.

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6 Responses to Options Education For The Individual Investor

  1. slait73 02/16/2009 at 1:50 PM #

    Estimated Mark,
    As I promised you bought your book and it is the well-read one held up. I am learning very much, and believe that it is the first practical book that I have on the options.
    You suggest to open IC when they are absent two or three months for the expiration, and I am thinking about understanding that you do not do any analysis of the movements of market, you centre on managing the risk of the position and if the price approaches a spread you close it in case you do not have protection, but, for example in a moment as the current is predictable a violent movement up or donw, ¿woul´d be interesting to bear in mind it to open positions until it had passed or at least had pass some days. I think can be very dangerous in moments like this one because the movement can be quik and large.
    Thank for all.

  2. WinterHawk 02/16/2009 at 3:29 PM #

    How do you search for possible Iron Condors to your liking? Is this possible with Trader Work Station?

  3. lynx 02/16/2009 at 3:37 PM #

    Mark,
    Can you clarify any on trading plans? I see them mentioned a lot and read about them all the time, but have yet to ever actually see an example. I am not asking for yours, but would like to just see an example. Or perhaps one is in your book? I am awaiting my copy’s arrival via snail mail any day now.
    lynx

  4. Mark Wolfinger 02/16/2009 at 8:25 PM #

    Yes, large, quick market movements are dangerous. To protect yourself, you have some choices:
    1) You can stay in cash and not open new positions. That avoids all risk – and the cost is not being able to earn profits. That’s a good trade-off when worried about the markets.
    2) Trade fewer contracts. I’m currently doing that.
    3) Adopt an alternative strategy. If you believe the markets will be very volatile, you can buy a small number of puts and/or calls. I don’t like that strategy, but you may like it.
    Thank you,
    Mark

  5. Mark Wolfinger 02/16/2009 at 8:30 PM #

    I don’t use TWS for any searches. I find that software good for providing greeks and graphs, and not much else.
    Because I trade only one underlying – RUT, the Russell 2000 Index – I have no need to search. If you are looking for good iron condor opportunities in individual stocks, I have no idea what software can be used to find situations that fit your parameters. Sorry.
    All I can suggest is to manually check for good iron condors in stocks you regularly follow. It’s not a good idea to jump into trading options on stocks with which you are not familiar.
    Mark

  6. Mark Wolfinger 02/16/2009 at 8:42 PM #

    Snail mail has been especially slow this past week (at least from my vantage point) and I have no idea why that is.
    ‘Trading plan’ is not a well-defined term because so many people have such different ideas as to the meaning of the term.
    I don’t have such a plan – other than not allowing risk to become great enough to either frighten me or make it possible for me to lose a large sum if something unforeseen happens.
    The advice about trading plans that I believe accept as true:
    The plan tells you what sort of positions you want to trade. If you are a very short-term trader, then it’s important to plan ahead on what it takes to enter and/or exit a position. If you are like me, and more of a short-term investor (one or two months per position) than a trader, then the timing of a trade is less important.
    Some tell you: ‘Make a plan and stay with it, no matter what happens.’ I believe that’s foolish. Make a plan. The plan includes when to enter, why to enter and profit objectives. The plan includes when to exit: perhaps when you have make x dollars per trade, or x% of the maximum possible profit for the trade. But it must also include when to make an adjustment to reduce risk. IMHO, the plans must have flesh on the bones, but it is not something that must be unchangeable. Use your brain power to decide when a position is not working or is not likely to work and then change the position.
    If you cannot do that; if you freeze when trouble looms; then a strict plan can work for you. But a great deal depends on the strategy yyouu adopt. Fell free to check back when you have a good idea of how t plan to begin using options. I may be able to offer more specific advice on making a trading plan.