Options Education; Spend Your Time Efficiently

I've been reading a variety of blogs and have come across some interesting ideas that are applicable to my world – that of an options investor/trader.

One such post (a guest post, written by Ramit) warns readers that most people waste too much time by focusing on items that may seem to be beneficial, but which contribute essentially nothing to the overall goal. 

"One of the problems with starting a new business is that you have an infinite number of choices for ways to start earning money…She picked a crisp goal, eliminated all the possible things she could do, and decided to focus on tactics that would take her directly to her goal. That's the importance of reducing choices and focusing on the things that matter."

Focusing on things that matter.  That's the key.  There are  people who will tell you what you should do, or must do.  It's very likely they have no idea what it takes for you to succeed.

As a trader, one goal is to make money.  Another goal could be (I'm avoiding telling you what you should do) understanding how adding too much risk can destroy your chance for success.  Perhaps you have additional goals.  Your job is to find a good path towards meeting those goals.

For the vast majority, trading options is not a business.  But treating your plan to use options as if it were a business makes it more efficient to take the necessary steps towards achieving your goals.

You could rent an office, get state-of-the-art computers, buy packages of trading software, read every trading book you can find, etc.  But that's overkill for any beginner.  Whether it's an appropriate way to spend your time and money – after you have proven you have a a business – i.e., you earn money when trading – is a personal decision.  I never did any of those things. 

But it's not a good way to get started.  None of those steps give you the necessary skills or education.  [Too many books will provide conflicts.  Reading more books is a good idea to expand knowledge – after you understand the basics.]

If you are at the stage of deciding whether to learn about options, it's important to understand how options work and what they can do for your investment portfolio.  If you think options provide the path to instant riches, you are mistaken.  I use options to hedge – reduce the risk of owning – investment positions, and I hope to encourage you to use options conservatively.  Doing so allows plenty of room for profits, with limited losses. 

I recommend you spend your 'options education time' doing things that help you meet your objectives: protect your assets and earn money with less risk than the investor who buys and sells stock.  To begin, pay attention to the most basic concepts of options and how they work.

Ask your broker for the paperwork necessary to begin using options and open a practice account.  The broker may call it paper-trading or virtual trading.  Take advantage of such an account.  It allows you to become familiar with your broker's trading platform, and also allows you to make trades – all with no risk (yes, there's no reward either.)

Then study some basic option strategies.  I recommend my book, The Rookie's Guide to Options, but here are two sites that offer decent information at no cost: The Options Industry Council and CBOE.  

None of this is a waste of time.  Each step provides a benefit that moves you closer to your objectives.  When trading you'll get practice choosing specific options to trade.  You'll learn how option prices move up and down as market conditions change.  You'll learn what can go wrong, and how money can be lost.  That, in turn, helps you appreciate risk.  You will also learn what it takes for trades to become profitable.  All of that occurs as you gain experience with various aspects of buying and selling options. 

You can pretend you signed a contract to become a starter in the major league of options – but first you get to play and learn in the minor leagues – where your pay may be zero, but so is the tuition.

Ask questions of people you trust. Join an online forum, but be aware that not all of the information can be trusted.  Don't spend big bucks for costly seminars.  Have patience, and when ready, begin trading with small sums of real money.



6 Responses to Options Education; Spend Your Time Efficiently

  1. Fatal error: Uncaught Error: Call to undefined function ereg() in /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php:63 Stack trace: #0 /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php(19): the_commenter_link() #1 /home/mdwoptio/www/blog/wp-includes/class-walker-comment.php(179): custom_comment(Object(WP_Comment), Array, 1) #2 /home/mdwoptio/www/blog/wp-includes/class-wp-walker.php(144): Walker_Comment->start_el('', Object(WP_Comment), 1, Array) #3 /home/mdwoptio/www/blog/wp-includes/class-walker-comment.php(139): Walker->display_element(Object(WP_Comment), Array, '5', 0, Array, '') #4 /home/mdwoptio/www/blog/wp-includes/class-wp-walker.php(387): Walker_Comment->display_element(Object(WP_Comment), Array, '5', 0, Array, '') #5 /home/mdwoptio/www/blog/wp-includes/comment-template.php(2244): Walker->paged_walk(Array, '5', 0, 0, Array) #6 /home/mdwoptio/www/blog/wp-content/themes/canvas/comments.php(43): wp_list_comments(Array) #7 /home/mdwoptio/www/blog/wp-includes/commen in /home/mdwoptio/www/blog/wp-content/themes/canvas/includes/theme-comments.php on line 63