To Read, Perchance to Dream

Steven Smith

Either I really stink at explaining options or I've done just enough to pique people's interest in learning more, because the number of requests for books and options education has been on the upswing this week. Or maybe it's just a function of people facing a rainy holiday weekend and looking for some reading material that will make them both smarter and sleepy.

The Option Institute Corp. (OIC) Web site is always a great place to start. It offers basic strategies, a FAQ and books, and best of all, its 1-888-Options hotline is always (wo)manned by friendly and knowledgeable staff. Don't know what's going to happen to your options after a spinoff or stock split? Give them a call.

Another great educational site is Optionetics, which has a variety of screening tools and software.

RedOption has a great glossary and a breakdown of some of the popular trading strategies and offers both live and online seminars.

Two subscription-based sites also offer free tools. Chartbender.com's educational segment, the Options Knowledge Exchange, has a great scroll-down tool bar that peels back to explain in both text and graphics the pricing behavior and profit/loss of various strategies during given time frames and volatility environments.

The other is iVoltillity.com, which as the name implies focuses on volatility data. It offers free, though delayed, information on all listed options, and it has some basic tools such as an option calculator and most-active lists. For more advanced traders it offers a broad and deep suite of screening tools and historical data software.

As for books, you can't have a reading list without putting Sheldon Natenberg's Option Volatility and Pricing: Advanced Trading Strategies and Techniques at the top. This is a classic, and it covers all the concepts and strategies without agendas or false promises.

One of my personal favorites is The Option Traders Handbook, by Jabbour and Budwick. It's written by two active and practicing option traders who came from other professions, namely law and law, and they combine a disciplined learning process with great analogies and real life examples.

Another popular read is Options as a Strategic Investment, by Lawrence McMillan. It provides all the basic definitions and concepts and does a very good job of showing how to apply the strategies that are most effective in various circumstances.

One of the best books, though a bit more advanced, is Options: the Hidden Reality, by Charles Cottle. It can be found on his Web site, RiskDoctor.com, which also offers mentoring services, chat rooms and Web seminars. Cottle gets into dynamic hedging, position dissection and understanding the things that motivate market makers and define the trading landscape.

Of course the best way to learn is by doing, but if you are not quite ready to plunk down your hard-earned cash, paper trading, or using one of the many virtual trading tools available through most online brokers or the sites mentioned above, is a great way to not only take first steps but test more sophisticated multi-leg strategies.

As always, I look forward to your feedback.

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