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Tuesday, January 28, 2014

Asked-For Advice

In recent months, I have been inundated with emails, sourced by this blog, asking me for personal advice and opinions, mostly about Wendy Kirkland and Options Animal. I apologize for not spending more time on specific answers. I just don't have the time.

Early on, I wrote glowingly about these and other mentors. I believe they are honest people, I believe that they have knowledge about options. I paid HUGE fees to said mentors to learn how to trade options. IT IS ONE OF THE BIGGEST REGRETS OF MY LIFE. If I had it all to do over again, I would NOT PAY ANYONE ANYTHING to learn options. They did NOT have the answers I needed anyway.

So, instead of answering emails over and over again, I want to make my current position very clear.

Here's what I would do instead:

1. Open a brokerage account with TD Ameritrade and download their option trading platform "Think Or Swim" and fund it with $2000. (that amount of money will qualify you for margin). (Of course if you're already a trader, you'll fund it accordingly.)

2. Open a TastyTrade.com account, and download "Dough" which is new software that is a handy addendum and gateway to Think Or Swim. (It does not replace it, but simply does some of the calculations and provides volatility information for you). Both softwares are superior to any others I've seen.

3. Learn how to navigate both of these pieces of software using the Doughjo and the video trainings on navigating TOS. There's plenty to learn, so don't shortchange yourself by ignoring the nuances that do not exist in other software in the industry.

4. If you are new to options, start watching the hundreds of videos in the TastyTrade.com archives which are FREE. There are beginning series ("Where do I start?") and small account series ("Liz & Jenny"), and endless, searchable videos for intermediate and advanced traders. Some of the best are "Market Measures" (advanced) and "Tasty Bites" (small accounts) and "Best Practices". They have videos for IRA accounts, for futures traders, just about anything you could want. FREE.

I would not spend one red cent on education. Besides Tasty Trade.com, there is another website called "Options Playbook" which has some clean, easy to comprehend lessons. FREE.



I would be, generally speaking, a SELLER of options, not a buyer. In other words, a Contrarian trader. This is a big difference between Wendy Kirkland, Options Animal, and all other mentors I had in the past. This is as different as learning another language altogether. This is, in my opinion, the only way to truly succeed, long term, regardless of trend, in options.

5. I would not make real trades until I was thoroughly educated on one simple strategy. It is not necessary to know ALL strategies at once. Just learn one at a time, but learn it thoroughly and then trade it with real money, with different underlyings and keep copious journals on your results. You need to be interested in your probability of success, the return on your investment, and your risk. There are dozens and dozens of videos to teach you what to look for. While you trade one strategy, go to paper trading and learn the next strategy without losing real money.

6. TRADE SMALL. TRADE OFTEN. By that, I mean that for you to mathematically succeed in options trading, you MUST make enough trades to get the probability of success to work in your favor. Watch the videos about "The Skinny on Options Math" if you want the true mathematical information on how random walk theory and mean reversion. (I first learned some of this in a book "Options and Options Trading: a Simplified Course that Takes You from Coin Tosses to Black Sholes" . I'm not saying I understood it all, but it helped. But this is advanced KNOWLEDGE and THEORY. You only need to implement it by keeping your trades small, and making a LOT of them. The odds will fall your way, once you know how to determine your probabilities of success.

from The A-Unicornist
7. Finally. A disclaimer. Options trading is NOT for everyone. You must be willing to study, to truly learn what you are doing, or YOU WILL LOSE YOUR MONEY. I can assure you it is not a get-rich-quick scheme, but it so far surpasses the possibilities of success in buying/selling stocks (only) and surpasses the AMOUNT of money you can make and the amount you have to risk, compared to trading stocks only. I suggest that if you do not have a burning desire to trade, then you probably shouldn't. If you cannot sustain some losses (nobody wins all the time, regardless of WHAT they say), then you probably shouldn't. If you cannot develop discipline, and divorce yourself from emotional obsession on winning/lossing, then you probably shouldn't. This should be an intellectual, mechanical and professional practice. It is NOT gambling and it is NOT luck. It is hard work.

And here's a little link to the Rookie's Corner on Options Playbook that I think every beginner should read before they buy that first Call Option. Sell a Put instead. Getting Your Feet Wet.

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1 comment:

  1. It took me the better part of 10 years to get comfortable with options trading, and your point #7 is a good one. Everyone will learn at their own pace, and some people may ultimately decide it's not for them. There's plenty of money to be made the old fashioned way of buying and selling equities that are undervalued. It's good enough for Buffet, so surely it's good enough for the rest of us.

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