Today I want to discuss 7 ways you can learn to trade options.
Trading options has become an extremely popular investing method for three main reasons.
- It doesn’t require a lot of capital to get started.
- Options can be less risky than stocks when you learn how to trade effectively.
- And they have the potential to generate a higher rate of return than traditional stock portfolio.
In addition to helping, you reduce risk and increase your probability of success, learning to trade will increase your ability to become a much better decision maker.
Options trading for beginners Options trading is not a get rich quick scheme. Learning to trade effectively takes time. But with a commitment to learn the basics and practice your skills, trading can be a rewarding undertaking. Seven key methods for learning to trade options are available to new traders. The most popular methods include books, courses, online videos, brokerage resources, financial networks, personal market tracking, and paper trading.
There are many good books about options trading on the market. One that has been used by thousands of traders is Lawrence G. MacMilan’s classic ‘Options as a Strategic Investment’. Some may consider the book a little too heavy for new traders, but if you have the time, it is certainly worth the effort. Here are a few others you might find helpful:
- Option volatility and pricing by Sheldon Natenberg
- Fundamentals of Futures and Option by John Hull
- Options Trading Cash Course by Frank Richmond
2. Enroll in Options trading course for beginners
According to Investopedia, you can learn options trading offered by reputable companies. They state they only recommend the best product through an independent review process. (https://www.investopedia.com/best-options-trading-courses-5120500).
3.. Use online resources such as YouTube videos
YouTube is another excellent resource, and you will find hundreds of useful videos. The number of videos about options trading can be overwhelming and I don’t recommend this as the best learning tool. But you may find it to be a method that works for you, so, use what works best for you.
4. Brokerage training videos
All brokerage firms offer some form of training materials. This includes market commentary, newsletters, guest speakers and email broadcast covering stocks and options concepts and strategies. If you have a brokerage account for options trading, ask a representative what resources they offer.
5. Professional traders on financial channels
My favorite all time financial program is tastytrade (www.tastytrade.com). This non-commercial financial network produces 10 hours of live programming daily. The investment content focuses primarily on options trading, market commentary about stocks, bonds, futures, commodities, and crypto. The content is suitable for all levels of options traders from beginners to advanced traders. In addition, checkout their web content. https://www.tastytrade.com/news-insights/-tastytrade-trading-commandments.
6. Study the markets you want to trade
Nothing compares to learning to watch market price action. When you get a firsthand view of how the prices of your favorite stocks move with both fundamental and technical influences, the application of options trading strategies and management techniques will come into a much clearer focus.
7. Practice paper trading
Paper trade is a simulated trade that allows you to practice buying and selling options without risking any money. As you begin to learn new skills you can enter trades and track the movement of the options and the underlying security.
Some brokerage firms allow you to paper trade on their platform. Check to see if your firm has that option.
Creating a spreadsheet to track trade ideas can be helpful. Or, if you are old-school, you could write your trade ideas in a notebook and follow them that way.
Here is how I used to track my idea when I first started
- Symbol i.e. SPY
- Directional bias – Bullish
- Strategy idea- short put
- Expiration date – e.g., September 16
- Credit received
- Idea notes
Paper trading allows you to follow your strategy to see how a trade may have evolved over the life of the contract.
Of course, paper trading is not like real trading. Without money on the line the emotion that comes with actual trading is missing. Paper trading can be helpful. But don’t use it as your sole learning tool. It may lull you into a false sense of security.
Learning to trade options is an excellent way to help you develop your decision-making skills. As you engage with the methods outlined above you will become a more skilled and confident trader.
Give yourself time to learn the basics and don’t be in a hurry. The markets aren’t going away any time soon. So, keep learning and practicing.
There is always another trade coming down the tracks.