[smartads]
For as much as I know about stock trading, I pretty much know squat when it comes to options trading; however, I’ve been meaning to learn more about it. Luckily, I was able to score a review copy of the book, The Options Trading Body of Knowledge: The Definitive Source for Information About the Options Industry. Let’s see if this book really is the “definitive source”…
The man behind the book is Michael C. Thomsett, who has authored several other financial books (many on options trading) and The Investment and Securities Dictionary.
According Thomsett, investors use options for 4 main reasons: insure long portfolio positions, hedge short risks, play short-term market price swings, and enhance profits. Basically option traders are looking to manage risk in their overall portfolio.
The main purpose of this book is to share a whole bunch of option trading strategies, how options work, how to calculate returns from options and stock trading, a lot of glossary option terms and phrases, and much more. The book also includes example, tables, and other facts and figures to help you grasp what’s being taught.
If you’re unfamiliar with what trading options are all about Thomsett uses a great example:
A philosopher anticipated an exceptionally abundant olive harvest in the
coming year and put down deposits to tie up all of the local olive presses. When
his harvest prediction came true, he was able to rent out the presses at a greatly
appreciated rate.
Essentially with options you are creating a contract for future use. Options enable traders to leverage relatively small amounts of capital to create future profits or, at least, to accept risks in the hope that those options will become profitable later.
Even if you don’t want to specifically trade options, understanding how they work and tracking activity can help you gain insight for how a particular stock might move. Its really a powerful tool I never took the time to dive into.
Overall, the book contains too much information to summarize all in one article. You could just save some time and read the actual book. Thomsett covers everything from the basics of options, what are calls and put options, strategies to properly trade options, and really so much more.
I’ve had a lot of people ask me about options trading, and unfortunately I haven’t been able to give them good answers in the past; however, after reading this book, I kind of feel like an options trading expert.
Get your copy of The Options Trading Body of Knowledge: The Definitive Source for Information About the Options Industry.