Best products from r/options

Cool, learning is good. I’m a reader, I recommend picking up a book (fairly up to date one, at least one that was written post-internet era and is still generally applicable in the way option orders work, as it’s certainly different than what a book in the 80s would have said, if there was one). Choice is up to you, search the sub for “recommend books” or something similar and you’ll see plenty of suggestions.

IF you’re a reader, I say go for a book, you’ll read when you wouldn’t be looking online. Also, a good book already sold you, you bought it, and so it pushes no agenda, and the authors is incentivized by sales to have the most informative book, especially in the current retail market where people likely put equal or greater trust in strangers’ Amazon reviews than the vestiges of how it used to be pre-amazon and yelp, ie consumer reports, industry/hobbyist magazines, and word of mouth. I don’t know who the go to for book reviews was, I’m guessing NYT always ran a book critic column, and perhaps trading mags would have reviewed some. Big, needless tangent I’m writing here, but what a change. Anyway, point being, an author should generally just be out to be helpful as good reviews will drive sales. Free books (or even worse, this “Apiary fund” which is really a ‘school’ built to sap you money. See below for a note on the subject) are.not to be trusted, the adage there’s no such thing as a free lunch is pretty much always applicable to investing. Nobody is giving away trade secrets for free.

If you are tempted by a class of some sort, ideally look for something in your town or city that does community adult education. Generally it’ll be $10-50 for this sort of thing, depending on the length. The idea being, community centers and non profits are not trying to squeeze your money, so not only is the lesson cheap, it’s centered on teaching, not selling. Many “free” classes advertised (You’ll see RE investing most commonly, though no doubt people do it for options) are really excuses to get you in a room where you feel trapped and give you the hard sell. Usually some variation of, here’s a tiny bit of info, now to get the real secrets just pay $5000 for this week course, or something similar. Avoid these like the plague, they have no wisdom to offer and just want your cash.

Similar to community adult ed, university related classes also have no hidden agenda, so if you find an options course you could audit or mmmmm or something, you could go for it. I didn’t go to business school or major in economics or anything so I don’t know if they have whole classes on options, but perhaps at least one that covers the market along with options, maybe even futures.

But time-wise, you’ll get the info quickest reading online or reading a book, and you’ll learn quickest by doing, no amount of reading will prep you or teach you as trading will. But you want at least a good background.

For books, I can only recommend from what I’ve read. I’ve read I think 4, 2 stood out:

Understanding Options Ed. 2E by Michael Sincere. It’s not a very complicated book, it’s not teaching you ICs and jade lizards, but it gets you all the basics you need to ask smart questions.

The Only Options Book You’ll Ever Need by Russell Stultz, is my favorite. It starts simple, covering everything the simpler book does, and builds on that. It’s nicely out together for progressive learning, and if you read both, the first book you could eat in a day, and by the 4th chapter or so you’ll be ready to start trading. Then keep reading, since if you go too far with zero experience it’ll not actually stick.

Or, use the help bar here and its resources, the CBOE has great online teaching resources, as does Tastytrade, and others.

Hope that helps steer you in the right direction- good luck!

Bookmark these sites: theOCC, which is the clearing organization for all US option exchanges. A part of their mission is to provide education to market participants and the public about all the products they clear. For example, if you go to the Publications page, you'll be able to view the by-laws, rules, and the publication for The Characteristics & Risks of Standardized Options that every broker will send you when you open an account. You might as well get a head-start and do some reading.

I would start here... OptionAlpha video tracks. Definitely watch the entire beginner track. You may or may not have to sign up, but it's free. His videos are hosted on YouTube, but I like his site better because he orders them in a logical sequence and replies to comments, unlike the unordered playlists on YouTube.

OptionsPlaybook for visualizing the profit and loss of different strategies. As a beginner, just focus on understanding long calls, long puts, short calls, short puts, and defined risk strategies like call spreads, put spreads, iron condors (basically a defined-risk strangle), iron butterfly (basically a defined-risk straddle), etc.

Alongside that, any options book that gives a good overview in a logical sequence. I see a lot of recommendations for something like McMillan. You can look at some of the bestsellers here or view other Reddit suggestions.

Doing is definitely better than just reading, so find yourself a trading platform that has a paper (fake) money feature, like thinkorswim. The guy that does the OptionAlpha videos uses TOS, so it's easy to follow along, and there are lots of learning videos on the web.

I bookmarked this subreddit with it sorted by newest submissions and read it everyday. The sub activity provides for a few new posts per day, which makes it manageable enough to still keep up with reading all the new comments on a daily basis.

For topics I want to find more info on, I do a Google search like this: learn options site:reddit.com/r/options. I find it to work better than using Reddit's own search.

More in-depth reading like I see a lot of recommendations for Natenburg. I've also read this book, which has a lot of in-depth graphs on the Greeks and time to expiration, etc. and helped me understand why people recommend certain parameters for strategies. There's a lot of interesting things in that book that I enjoyed learning about, but like the title, several chapters don't apply for retail trading in the amounts that I'm trading.

Timeline for understanding?.

>How many trades per day or week do you do typically now?

About 3-4 per week. Most trades I open are in the 45-75 DTE range and I close at least half of them prior to expiry, usually around the 20-30 DTE range.

>Which brokerage do you primarily use for options?

Interactive Brokers. I'd strongly consider moving to TastyWorks but I've had a few family members throw some "play money" my way and the IB friends and family account makes it easy to keep all the money separate. It does hurt every time I close a trade and have to pay commission again :(

>On index options, do you mostly go for AM-settled monthlies? I've had a lot of liquidity issues with any other expirations.

Mostly, yes. If I see good liquidity on a weekly, I might go for that.

>I hadn't heard about the Kelly Criterion, thanks for the pointer.

I recommend Fortune's Formula if it interests you. I don't really use it to select my "bet" size - it's just a guideline that informs me how good the risk/reward is for a particular trade. In the example I posted elsewhere of the custom software I use, you'll see the Kelly column. If a spread has a really high Kelly (like over 40%) and is actually liquid, it likely has a pretty good risk/reward ratio.

>edit: Do you also trade futures or futures options?

No, I'm very much a "learn one thing really well and do it really well" kind of guy. A lot of folks here speak highly of futures options so it's something I will definitely learn about in the future, but for now I still feel like I have a lot to learn about what I'm already trading.

That's an interesting conjecture, and a topic worthy of thoughtfully probing in the main forum.

I too would be interested in creating, or seeing created a poll for an unscientific measure of the demographics of the population here.

I would be inclined to believe, without much evidence, that there is a very mixed population participating in options, with some more visible, and many less visible.

----

It is certainly the case that mobile applications and brokerages with low or no cost commission attract a population that is willing to risk money, in ignorance, small personal funds, and a population that does not yet know how easy it is to lose their money in a big way.

The rise in this forum's participants from 30,000 members to 70,000 members in the last couple of years is, I speculate, partially driven by easy access to mobile applications and their promotion. This newby forum is an effort to deal with the influx of those who are learning.

Those who wrote books were often floor traders, and were the only ones in the know about a lot of lore and theory of options; electronic trading has really changed that as the face-to-face options trading floors evaporated over the last 20 years, and modern internet media has made the threshold for publishing radically different in the last 20 years as well.

To well-organize the useful experiences one has had, perhaps it takes 10 years of trading, and the maturity of 35 years of age, to have the confidence to know their views are worth the difficulty of putting into print. I don't know how old John Carter is, probably now in his late 40s; perhaps he wrote his book
when he was in his early 30s, published in 2005 (now forthcoming in 3rd edition) Mastering the Trade.

Yet also Websites like OptionAlpha or the podcast series Chat with Traders could be considered future books, by distilling the voluminous information collected there, if they don't forever reside in their existing media form.

I note that current advertisements for Etrade, TDAmeritrade, Scwhab, Merrill Lynch, and Fidelity, and Fischer, seen on channels like MSNBC are targeting the population that has assets to play with, from say age 40 to 75.

Anton Kreil describes a perennial problem of brokers needing to recruit new customers, and creating a path for new clients to sign on, after a significant fraction their current population of clients have dwindled away their assets as a consequence of learning how (not) to trade.

We may be witness that attrition yet.

I used this book for a cross listed (undergrad/graduate) derivatives course. It’s extremely dry, but covers almost all the basics. It does make a good amount of assumptions for your financial background, but with majoring in pure mathematics, I’m sure you’ll pick it up pretty fast. Good luck and congrats!

https://www.amazon.com/gp/aw/d/0321357175/ref=cm_cr_arp_mb_bdcrb_top?ie=UTF8

The equation you posted is the full Black-Scholes PDE and the equation you're talking about is presumably a solution to the above PDE. Asking what each of the terms is probably isn't the right question, if that's the kind of info you want you should take a step back and look up a full derivation. There's a pretty common text out there by Marek Capinski (The Black-Scholes Model) that walks through the derivation but unless you have a math background it will be beyond you -- but if you don't have a math background, looking at the full PDE also will be beyond you so.... yeah. You can probably find derivations online as well for free, but I don't have a link to one and can't recommend any.

Just as far as terms, S is probably the price of the stock, sigma is usually the volatility, r would be the risk free rate, t would be time, and V is probably the price of the option.

Right side and left side isn't the right way to look at an equation like this, you need to look at all the terms because you're looking for a solution that satisfies all of it, not two halves that you're trying to match up. If you look at different derivations, they'll likely have the terms organized differently. Probably lots of them isolating V or maybe everything set equal to zero.

not OP but I thought about writing a post with more info on each book / recommendations / best summaries.

• Exploiting Earnings Volatility (Brian Johnson), portfolio manager / options trader. helped understand how to differentiate earnings vol vs regular vol + model them. I think his idea to use linear regression to impute the market's expectations across time is a good foundation but needs to take into account some extra things.
  
  
  
• Volatility Trading (Euan Sinclair), prop trader
  
  
• Trading Volatility /Correlation/Skew/Term Structure (Colin Bennett), Quant at Deutsche -- really interesting and if you've got portfolio margin you can use some of the strategies, like pairs trading / dispersion.
  
  
• Options Volatility Trading (Adam Warner), previous options market maker. prob the first book I read about vol trading.
  
  

There aren't a lot of easy books on options trading (especially sell side). As far as I can tell, all the beginner books are just a waste of money; spend your time online as there's plenty of free educational content.

If you feel up for the challenge, I read both of these and found them insightful:

Natenberg: https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques-ebook/dp/B007VLQQU4

Nations:https://www.amazon.com/Options-Math-Traders-Website-Strategies/dp/1118164377/

Both are pretty technical.

I'd also recommend Sinclair: https://www.amazon.com/Option-Trading-Volatility-Strategies-Techniques/dp/0470497106, but his book is a tad redundant to the other two. Good insights for best practices though.

I don’t know how I knew. Maybe you have a youthful and optimistic writing voice.

I’m 37, and I actually manage money for a living as an RIA (registered investment advisor). If you’re unsure about a career for yourself, I’d highly recommend it. Someone only 20 years old with your expertise would have no trouble getting into the business and be very successful.

Using Bitcoin or any hard currency as opposed to fiat adds immeasurable value to society. Read “The Bitcoin Standard” by Saifedean Ammous and your perspective will be expanded

https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Central/dp/1119473861 and buy

And get a copy of the reference tome: Options as a Strategic Investment

https://www.amazon.com/Options-as-Strategic-Investment-Fifth/dp/0735204659

And your investment game will be better than most advisors by the time you’re 22. That’s the best advice I can give👊

So, I'm not sure these are what you're looking for, because they're basically written by viewers of tastytrade to distill what they've learned from the show. In other words, if you're looking for a different perspective or an independent confirmation of the methodology, this ain't it, but if you just want the tastytrade principles in book form, you might find them useful.

By Dr. Russell Richards:

• Trade Options with an Edge
  
  By Tony Rihan (he calls in as "Tony from Mexico City" if you're familiar with the show):
  
  
• How I learned to Trade like Tom Sosnoff and Tony Battista: Book One, Trade Mechanics (Volume 1)
  
• How I learned to trade like Tom Sosnoff and Tony Battista: Book Two, Advanced Strategies and Insights (Volume 2)
  
  Edit: Also, for websites, the Option Alpha podcast / blog / service seems to be of the same vein.

Here are a few I liked.

On the easy side but very thorough, good for starting:

Options as a strategic investment, Lawrence McMillan
https://www.amazon.com/dp/0735204659/ref=cm_sw_r_em_apa_i_0IfLDbZYQ3Z67

Focusing on market making:

Option market making, Allen Baird
https://www.amazon.com/dp/0471578320/ref=cm_sw_r_em_apa_i_WPfLDbTZ0C15B

Harder but good stuff:

Volatility Trading, Euan Sinclair
https://www.amazon.com/dp/1118347137/ref=cm_sw_r_em_apa_i_zKfLDbQ0KSEPG

\> with 200 leverage you're screwed if the market goes against you as well, and won't you be automatically stopped out from just a small move in the wrong direction?

Certain brokers offer crazy day-trading margins. For example, NinjaTrader Borkerage and Tradovate - I have and use accounts with both - support $500 day margin for one e-mini S&P 500 futures contract. The contract is worth 50x the S&P500 index, which means today around $131k. In other words, with $500 you can open a position with a notional size of $131k, which means around 262x leverage.

But, like you said, a tiny little movement on the contract against you (in this case, a mere 0.39%) will wipe your $500. So, even though *there is* huge margin available, it doesn't mean that you necessarily should be using all that.

For overnight positions - ie, positions that you don't close the same day you open - the minimum margin requirements are set by the exchange, and are much more reasonable. Eg, currently you need about $5.8k to hold 1 contract (e-mini S&P500) overnight. $131k/$5.8k = around 22x leverage.

There's an interesting book about futures - not too basic, but not tremendously advanced either - that explains a lot of cool stuff, including how to use Options on Futures to improve your odds. I've got a free copy of the book with a Kindle Unlimited subscription. Check it out: https://www.amazon.com/Higher-Probability-Commodity-Trading-Comprehensive-ebook/dp/B01INZ4PL8 . It also discusses a lot about portfolio and risk management.

Anyone trading short vol strategies through the spring probably got hit pretty bad. Long-term, it all works out. I made 20% last year but I gave about half that back in this year's unusual vol shock.

Here is a guy who has made a nice return long-term just selling SPX verticals mechanically. He does have other forms of passive income, so he diversifies outside of the options market alltogether. I have seen similar strategies on the Russel (RUT) and other variations on SPX that also test out well.

https://www.youtube.com/watch?v=8gA8lU6XUmE

Here is an ebook by a guy who made classic tastytrade style earnings trades and tracked his long-term results. Nothing really new in the book but it is nice to see real world proof that things work outside of a backtest or theory.

https://www.amazon.com/Trading-Strangles-Company-Earning-Announcements-ebook/dp/B0121L6Z36/ref=sr_1_4?s=digital-text&ie=UTF8&qid=1527426204&sr=1-4&keywords=option+earnings

I think the free Excel sheets that are included in this book can be used for EV of multi legged positions. If not the Kindle book is only $3 and one of the better intro options books I have seen: https://www.amazon.com/Trade-Options-Edge-Russell-Richards-ebook/dp/B07965CMXC/ref=sr_1_1?keywords=russell+richards&qid=1572094506&sr=8-1

Don't blow up. Learn how to price your options. TastyTrades has lots of great tutorials. For books I recommend Taleb's Dynamic Hedging: Managing Vanilla and Exotic Options https://www.amazon.com/Dynamic-Hedging-Managing-Vanilla-Options/dp/0471152803

Options as a Strategic Investment was recommended to me as a good book to build an Options foundation on. I'm still working through it but so far, I have to agree. It covers the different strategies in detail. Giving you the what, why, and when to use them.

I thought this book was really good: https://www.amazon.com/Understanding-Options-2E-Business-Books/dp/0071817840

Also, watch all the videos and read all the links that are associated with options on Investopedia.com. Its a great resource.

www.cboe.com has some great tutorials.

A book I often refer to can be found on Amazon:

https://www.amazon.com/Options-as-Strategic-Investment-Fifth/dp/0735204659/ref=sr_1_1?crid=R4LJ2GU5HQ2Y&keywords=options+as+a+strategic+investment+6th+edition&qid=1573349119&sprefix=options+as+%2Caps%2C163&sr=8-1

I recommend at least a year of stock trading before getting into options... also read this book (https://www.amazon.com/Trading-Option-Greeks-Volatility-Bloomberg/dp/157660246X/ref=sr_1_3?s=books&ie=UTF8&qid=1539457703&sr=1-3&keywords=trading+option+greeks+by+dan+passarelli ), if it is too advanced, you need to learn more about the stock market before doing anything else.

https://www.amazon.com/Rookies-Guide-Options-Beginners-Handbook/dp/193435404X

This goes over all of the basic trades. How to enter and exit. And how to make adjustments. It’s a little long winded but very informative.

https://www.amazon.com/Understanding-Options-2E-Michael-Sincere/dp/0071817840

This is less wordy and covers the same topics. However it is less informative than the rookie book. Probably good to start here and then read the rookie book.

https://www.amazon.com/Only-Options-Trading-Book-Youll/dp/1945390115

I bought this book a couple years ago and i learn a lot from it and made a lot off the things I learned in that book. I would highly recommend. Depends on your level of options knowledge but im sure you will learn something.

Not just about vol trading but the ultimate option bible "Option Volatility and Pricing: Advanced Trading Strategies and Techniques" by Natenberg. Might be a little bit more broad than what you're looking for but this book is phenomenal. Was recommended to me by an option trader at a BB.

https://www.amazon.com/Option-Volatility-Pricing-Strategies-Techniques/dp/0071818774

Honestly I would say read a book on it. Use your notepad, your highlighter, make tabs, the works. Read it and then read it again.

I used this

Don’t buy a seat at the table if you’re going to bet on a losing hand.

This book is very good for beginners.

https://www.amazon.com/Options-as-Strategic-Investment-Fifth/dp/0735204659/ref=sr_1_1?ie=UTF8&qid=1527461946&sr=8-1&keywords=options+as+a+strategic+investment+6th+edition#customerReviews

If you're just beginning, my personal favorite is "Understanding Options" by Michael Sincere.

This website is a good source of higher level information:

Cfapubs.org

This book helped me:

https://www.amazon.com/gp/aw/d/0071818774/ref=mp_s_a_1_1?ie=UTF8&qid=1523193422&sr=8-1&pi=AC_SX236_SY340_FMwebp_QL65&keywords=option+volatility+and+pricing&dpPl=1&dpID=51RxE6P0LkL&ref=plSrch

Dynamic Hedging
https://www.amazon.com/Dynamic-Hedging-Managing-Vanilla-Options/dp/0471152803

Richard Bookstaber

https://www.amazon.com/gp/offer-listing/0201001233/ref=sr_1_fkmr1_3_olp?s=books&ie=UTF8&qid=1526365805&sr=1-3-fkmr1&keywords=bookstaber+on+options

Nassim Taleb

https://www.amazon.com/Dynamic-Hedging-Managing-Vanilla-Options/dp/0471152803/ref=sr_1_1?s=books&ie=UTF8&qid=1526365899&sr=1-1&keywords=taleb+options

I'd start with Bookstaber first. Yeah the book is "old" but the basic concepts are the same. Taleb gets more into all the Greek gunk

[http://www.amazon.com/Options-Strategic-Investment-Lawrence-McMillan/dp/0735204659/]

[http://www.amazon.com/McMillan-Options-Lawrence-G/dp/0471678759/]

[http://www.amazon.com/Profiting-Iron-Condor-Options-Strategies/dp/0134394607/]

[http://www.amazon.com/Option-Strategy-Risk-Return-Ratios/dp/0692028293/]

Those will give you 90% of what you need to know. There are a lot of books out there, the more you read, the more you learn. I have a library of 100+ books like these.

https://www.amazon.com/Options-as-Strategic-Investment-Fifth/dp/0735204659/ref=sr_1_1?ie=UTF8&qid=1502993339&sr=8-1&keywords=options+as+a+strategic+investment

Buy and read this book: Understanding Options 2E (Business Books) https://www.amazon.com/dp/0071817840/ref=cm_sw_r_cp_api_I7GIzb6CB2EJ9

Options as a strategic investment, by Lawrence G. McMillan.
https://www.amazon.com/dp/0735204659/ref=cm_sw_r_cp_apa_i_MWSWDbPJ9H54G

https://www.amazon.com/Option-Market-Making-Financial-Commodity/dp/0471578320/ref=sr_1_1?ie=UTF8&qid=1500849945&sr=8-1&keywords=option+market+making

https://www.amazon.com/Dynamic-Hedging-Managing-Vanilla-Options/dp/0471152803/ref=sr_1_1?s=books&ie=UTF8&qid=1500850029&sr=1-1&keywords=taleb+dynamic+hedging

RTFM before you buy. Chapter 25


https://www.amazon.com/Option-Volatility-Pricing-Strategies-Professional/dp/0071818774/ref=zg_bs_2672_3?_encoding=UTF8&psc=1&refRID=349CSEGTX0DJYR7A26SW

I started with Options as a Strategic Investment

edit: formatting