A Turned-Around Options Education

Yes, despite my prior claims that I have never made (and was nearly physically incapable of making) a trade in AppleAAPL, I went ahead this morning and established a bullish position in the name for the Options Alerts model portfolio. But of course my mixed emotions led me to use a fairly complex strategy that involves four strike prices covering three expiration periods.

I did have mercy on subscribers and offered a much simpler, though unofficial, trade idea that is much less dependent on variables such as time and implied volatility, being simply a way get long whose success rests mostly on shares of Apple moving higher. Of course, I think my complicated strategy offers a more attractive risk/reward and a higher probability of turning a profit.

I use this as segue into following up on my post from Monday about understanding options strategies. I'd like to move backward in a sense in this column and discuss the ways of attaining the options education that is needed to move beyond simply buying puts or calls and feeling comfortable using more complex strategies.

But maybe I should put out the disclaimer and make clear there is no guarantee of success, there are no secret formulas. I believe that successful options trading comes from understanding strategies, not relying on systems. No technical analysis software or quantitative black-box program (or any other product) is a fail-proof system for finding profitable, risk-free trades.

Hire, or Higher, Learning

You can't trade options if you don't have a basic knowledge of what they are and how they work. This ranges from the basic understanding that each option contract represents 100 shares of the underlying stock to knowing what a call and put are. A call option gives you the right to buy the underlying stock at a specific price, called the strike price, within a specific time frame, known as the expiration date. A put option gives you the right to sell shares of the underlying stock at the specified strike price.