I love options!
I really want to learn options, and already have got quite a few books on trading, and essentials like Options as a strategic investment… but Option volatility and pricing? This one scares me.
As a simple man, father of 3, longshoreman with a background as a carpenter, am I entering a world of pain?
I had my strong maths in school, but that was 20 years ago! Should I take on math lessons to be able to wield and master options?
Option volatility and pricing… for the average joe?
byu/Acceptable_Answer570 inoptions
Posted by Acceptable_Answer570
7 Comments
Depends what you’re doing with options. Natenberg is great, it’s required reading for all new hires at our firm. But we also do options market making for a living. If you’re going to run the wheel or something like that, it’s great knowledge but a lot of it is probably more than you really need to understand. Now that being said, more knowledge is always better, and I’d highly recommend that book. If you actually take the time to go through and understand it, you’ll know more than the vast majority of this sub.
Why not learn as much as you while paper trade?
Then when you are comfortable start small, set expectations and exit strat etc
But ye, you are entering a world of pain too lol
Jesus. No.
There are 2 ways to use options. The first of for leveraged directional bets on the underlying. For this to work, you have to be good at predicting the direction of the underlying in BOTH magnitude and time. Get one wrong and you’re sol.
The second is wonky vol plays. Lots of math here; but most strategies you won’t have the capacity or cost basis to run.
Sincerely,
A former options trader and current derivatives structurer.
No better teacher than getmarketskills.com. Not affiliated, just a student
Only go as deep as you have time and interest to do so. That’s what I’ve done. Now that said, I’ve gone pretty deep, but you don’t have to. I treat both of those books as reference texts, like a dictionary. I don’t read the whole dictionary cover to cover and I don’t try to read those books that way either. I dip in for something I need to learn and just read that section.
Here’s all the math you will ever need for options trading in one easy-to-watch video (highly recommended for everyone on this sub to view):
https://optionalpha.com/lessons/understanding-the-math
Math will help and you do not need to know all there is to know about options and the statistics behind them to successfully trade. If you want to study and learn for your own curiosity then go for it, but it is not required.
I’d recommend you learn how covered calls work on some good quality stocks you don’t mind owning anyway as these are very simple and basic with limited risk. Learn how Delta works as this will help measure risk and probabilities of success – [Gauge Risk: Options Delta and Probability | Charles Schwab](https://www.schwab.com/learn/story/options-delta-probability-and-other-risk-analytics)
See this to help you get started – [The Basics of Covered Calls (investopedia.com)](https://www.investopedia.com/articles/optioninvestor/08/covered-call.asp)
Most get into trouble by jumping in to buy options which can have very low win rates and lots of losses. This is more like gambling than sensible high probability and conservative trading that CCs can be.
There is a saying that new traders focus on profits where they often take too much risk to have many losses, some that are large and many even blow up their accounts. Visit over at r/thetagang where many who sell options hang out and post.
Experienced traders will focus on risk and probabilities to have far fewer losing trades, and much smaller and acceptable losses when they do happen.
The last thing I’ll mention is not to overcomplicate options and that the simpler more basic strategies often work much better than the convoluted and complex ones.
Yes! You as an average Joe can learn covered calls, and maybe the next step of selling puts to trade and make a side income. Being strong with math will help, but it is simple math as there is a lot of calculating the overall breakeven price of a ongoing position rather than complex pricing or statistic formulas. Best to you and enjoy your journey!
I would suggest go slow and read all you can about
IV, how options are priced, calls, puts, obligations and rights of seller/buyer, DTEs, theta and then open an account and start observing how contracts are priced. Options is unlike stocks so be sure you’re realistic and not too greedy when taking profits because your position can move against you very quickly.
My only aim after opening a position is to close it very quickly with a profit