How do I participate in options trading
At some point the idea comes up to deal with the topic of options and options trading. But where do you start?
Sure, Google is always your friend. But maybe there is already a more structured path that has been found to be good? Today I will explain the first steps to you, which I think make sense and which I have implemented myself before you even get into the topic. Further articles then shed light on the points listed today in more detail.
The rough timetable could look like this:
The series of articles Option trading ABC is really intended and designed for the beginner. I know the feeling well enough myself that the first time you are totally overwhelmed by the wealth of information that is available when trading options. I try to reduce this mass to an absolute minimum so that you have a starting point with which you can get started and thus the first trade can be booked in a few weeks.
We are all knowledge giants, but exercise dwarfs!
According to my favorite motto Just do it! I think it is more effective not to read the fourth or fifth book or the twentieth blog article, but to start practicing as soon as possible and then to acquire further knowledge from there. It is easier to understand terminology and the theory is more comprehensible through practical experience. So get into action.Just do it!
Nevertheless, there has to be some theory!
Unfortunately, we cannot avoid a little theory. I would therefore like to recommend a book to you today that has brought me all the terms (and much more) around the topic of options and that was my first contact with the topic of options trading in general and option trading in particular. The book is by Dr. Peter Putz and bears the title Investing strategically with stock options: Conservative wealth growth with option writers* and I can really recommend it for beginners.
It is very nice and simple, no frills around it and terms are described in sufficient detail for the beginner. The book itself focuses on two things that are important to us within options trading, stock options and the so-called option trading. Let's go into these two things (very) briefly.
Why stock options?
You can trade options on the stock exchange for anything. On shares, on one index, on raw materials, on Currencies, on Bonds and on so-called Futures. Maybe there is even more. For us, however, the stock options are interesting precisely because we are at heart Followers of the dividend strategy and basically want to build a passive income through dividends.
More about the synergy effects if you combine both strategies, the advantages, but also the disadvantages, if you limit yourself to stock options then in Part # 5 of this series of articles.
What are writer deals?
When trading options, there are always two sides, the one who sells the option and the one who buys the option from the option seller. The seller is the so-called Writerbecause in the time until the option matures, he usually does nothing but wait and see what happens. Keep still ergo writer.
More on this and that as a writer you can do one thing or the other to influence the outcome of the trade in your favor, I'll explain that in Part 2 of this series of articles.
Back to the book. Because the book already focuses on these two topics, in my opinion it is very well suited for us to acquire the basics and terminology that one will encounter every day in options trading. It only mentions the many other possibilities in passing and you can hide them nicely.
And don't be afraid of missing out on anything. I promise you, the amount of new terms will still blow your mind.
But I already have experience with warrants!
Stop! Stop! It is absolutely important to understand from the start that options and warrants are two completely different things. Options are the good ones, so to speak the Jedi of the investment universe. Warrants are on the other hand the Sith, the dark side of power 🙂 ...
Why it is like that? Options can be freely traded on the stock exchange. Anyone can buy options and, more importantly, sell them too! There is no need for a bank or any other regulatory body. The pricing is free and is determined by the market.
That's exactly what we want. That's how we love it with stocks, and that's how it should be with options, please.
Warrants, on the other hand, are dated Issuers (actually this is always a bank) so-called securitized Derivatives. Trading also takes place on the stock exchange, but pricing is not free. The prices are set by the bank alone. An absolute no-go for me.
Who controls the bank to see whether it is taking advantage of itself? Unfortunately, there is no transparency at this point. Therefore my opinion, for that reason alone hands off!
But there is one other reason why warrants are out of the question for us. We want to take the side of the writer, so sell the option and collect money for it. This is not possible with warrants. As the issuer, the bank reserves the right to sell the warrants. You can only appear as a buyer of the warrant.
In Part 2 In this series of articles you will learn why this is not a good idea.
So stay away from warrants!
I see the only advantage of the warrants in the fact that you can buy them in small denominations. Options, on the other hand, are always traded in packs of 100, depending on the underlying Underlying (the so-called Underlying) already go into the money.
So you could trade with warrants with less capital investment if necessary. but that is all.
Again, stay away from warrants. They are not suitable for our strategy.
That's it for today and the start of the series of articles Option trading ABC have been.
Please read the book linked above, Chapters 2 & 3, one similar specialist reading * (specifically the book by Jens Rabe I can still recommend for beginners) or one of my already published Articles related to options or look inmy options deposit, in order to acquire the basic terminology for the next episodes of the series.
In the next part Let's take a closer look at what a writer is and what actually constitutes the advantage of the writer. Spoiler: The writer's side is usually the winning side!
Thanks for reading and if you liked the article, please leave me a comment and share the article with your friends on Facebook or in your favorite forum. It would mean a lot to me. Thank you so much!
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