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Brian Hayslip

Where’s a good place to learn to trade options?


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There’s a wide range of ways to learn how to trade options. Free materials are available online in written and video formats and a lot of the bigger and better broker platforms provide educational resources on the subject. The first step would be to establish whether you’re motivated to trade options as a means of supporting (hedging risk on) a standard style of portfolio (including equities, CFDs, commodities and forex etc.) or whether you’re looking to trade and make profits out of trading the options themselves. Then, you have to be quite honest about yourself in terms of how strong your mathematical skills are, as getting down into granular detail on option strategies can involve quite high-level math. The fundamental principles remain easy to understand, but the detail of some strategies can be quite technical. The book: Options Volatility and Pricing by Sheldon Natenberg is a good place to start and will take an enthusiastic reader a good way into the subject. You can see my own copy is well used. If you’re completely new to the subject then regardless of whether you intend to use them for risk management or as a P&L generator, you could do worse than opening a Demo account with a broker that provides option trading and putting on some test trades. Not all brokers provide options markets, but the following are some of the ones that do: City Index, IG and Saxo Capital Markets. Understanding the user interface will be important once you decide what strategy you are following. The bid-offer spreads are often considerable, so fat-finger errors, even if spotted immediately, are costly to back out of. If you’re looking to use options to manage risk it is likely you’ll be able to do that with one option position. For example, if holding a long position that is showing an unrealized profit then buying a put in that underlying instrument can provide a hedge and that position will generate profit should the price of the underlying instrumentfall. If you’re looking to trade a strategy using just options a good starting point would be researching strategies such as Straddles or Collars. With those you’ll be opening two option positions that will take profits should the underlying instruments price trade as you expect it will. In these strategies it is possible to cap potential losses but with the trade-off that profits will also be capped.

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