Last update: July 2021
As a new trader, you will hear a lot of veterans talk about using options. The value, leverage, creativity and control you can get from trading options is empowering. As you start your journey trading options you need to have a clear vision of where you want to take your business. This is the first post in a series I’ll be calling Options 101. The goal of these posts is to educate you as a Tackle Trading team member and help you develop the right perspective on how to use options in your business. Later, I’ll add in educational videos and segments to supplement the conversation and education.
The first thing you need to consider is that the options market is both simple and complex all at the same time. What are your goals? Options can be the center-piece of a trading business or they can supplement a retirement account. Are you going to use options as your primary trading vehicle or are you going to use them to supplement stock, ETF, futures, and forex positions? You may not know the answer right now. But consider developing a long-term strategy to help you along the way.
Options strategies fall into a few different categories. First, is speculative. Strategies like long calls, long puts, vertical spreads, ratio spreads, and exotic spreads can all be speculative. Speculative strategies are dependent on you selecting either the direction of a security or the volatility of a security to profit over time. Are you good at reading charts? Do you understand the implied volatility changes to underlying options? If yes, then speculative strategies will be great for you. If no, or not yet, then practice speculative strategies for now and focus on other areas options as well.
The second area of options strategies are cashflow strategies. Covered calls, naked puts, vertical credit spreads, Iron Condors, calendar or time spreads and other theta positive strategies all fall into cash flow techniques. You can build an entire trading business around using cash-flow techniques. You will need to develop the skill-set needed to select appropriate stocks, learn how to price options and learn how to get fills on your credit trades that will help you build your business. Cash flow is one of the best businesses to build when you’re new to trading.
The last area of options trading I’m going to highlight today is bi-directional. Bi-directional options strategies include inverted butterflies, straddles, strangles, debicon’s (a favorite discussed on the coaches show regularly) and other options strategies that benefit from a move from the underlying stock going either up or down. If you prefer trading volatility – instead of direction – of an underlying stock. Then bi-directional strategies will be an area you will want to focus on.
There are many brokers that trade options. Some brokers have restrictions on who is eligible to trade options. When you sign up for a broker you will be given a trading level. If you want to trade more advanced strategies you will need to apply for a higher trading level to qualify for those techniques. Consider this – when you start trading you may only be eligible for certain options strategies. That may limit what you can do in your live account. But it doesn’t limit what you can practice in your paper account. Trade the strategies that you want to use long-term in your business. As I say frequently to new traders – trade what you know and practice what you don’t.
Before you jump into a live account and start trading options you should practice. Practice makes perfect. If you’re starting a new business, a good rule of thumb is to get 50-100 practice trades on a strategy before you take it live. Remember, there will be plenty of time to trade in the live market. It’s important that you test out your strategies and make sure you know how to MANAGE them as well as enter them.
Based on your account type and your investment objectives you will want to focus on one type of strategy as your primary strategy. Many traders develop a few strategies and try to perfect them. Some of our best traders that we’ve trained over the years only use a few strategies to run their business. You don’t have to do everything, but whatever path you choose you need to commit to learning every step of an options trade. Research, entry, management, exit, and evaluation. All of these phases of a trade are important.
Options Trading for Beginners
Continue learning the basics of Options trading with this additional freemium content from Tackle Trading.
Options 101 [Free Content]
Access more free high-quality articles to improve your knowledge of Options Trading.
In this article, Gino Poore delivers a great lesson on understanding and using the Delta of an option.
In this tutorial video, Coach T shows how to manage a credit spread and how to set up a contingency in ThinkOrSwim.
In this Thinkorswim tutorial video, Coach T walks the team through how to use the risk graph for options trading.
In this video tutorial, Coach T walks the team through how to set a basic stop on a covered call or naked put position.
In this video tutorial, Coach Matt goes through the latest edition of the Options Research Spreadsheet explaining how to use it to find the best stocks to cash flow.
In this video, Tackle Trading’s Coach Tim explains when, how, and why a trader would buy a put option on a covered call position.
The Tackle 25 2016 Edition is up and better than ever. This list contains the best stocks to cash flow and compound your gains.
The assignment hobgoblin has been haunting the dreams of novice traders since the dawn of the options market.
In this video tutorial, Coach Tim Justice teaches how to find the best candidates to trade the Covered Call options strategy using the Theta Research tool.
The Tackle 25 2017 Edition is up and better than ever. This list contains the best stocks to cash flow and compound your gains.
What is the Black-Scholes Model and how to use it in your trading? This is what this video will cover.
The Options Heuristic Series [Free Content]
How can we explain the basics of Options so that our students can really learn, without getting confused with so many concepts, terminologies, and strategies? That’s the idea behind the series.
Options Greeks Guide [Free Content]
The Options Greek Guide is a simple, powerful resource to help you better understand how to use the Greek’s.
As you build, enter, and manage Options Trades, it’s helpful to understand the math behind the Black Scholes Option Pricing Model. Using the Options Greek Guide will give you the information and training on how time, volatility and asset price changes impact options values.
What are the Options Greeks and how can you utilize them in your trading routine in order to perform better in the market? This is what you will be learning in this video series.
What is the Black-Scholes Model and how to use it in your trading? This is what this video will cover.
Options 101 Course [Premium Content]
The Options 101 Course is exclusive to PRO members. Try it for free for 15 days by clicking on the button below.
Options Report [Premium Content]
The Options Report is a weekly briefing delivered to Pro members of Tackle Trading. In this report, you will receive information and education that will help you develop as a trader. We will also highlight attractive trade setups for the coming week that you can add to your watchlist.
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