No. of Recommendations: 21
Cath,

Russ advised (and I concur,)
one last piece of advice - no options until way down the line.
You asked;
Way down what line? I plan to buy equities the way I buy real estate--fully leveraged!

Options aren't just "leverage" but a set of derivatives with their own unique markets completely seperate (though related) to the underlying securities. The DO NOT operate in "lock step" with their underlying securities... and their behaviours are amazingly tricky.

For example;
MSFT stock may move up 10% over a particular period of time.
Their August 25 Calls may simultaneously move up 150% (to pull a num from my butt.)

THEN, MSFT may move DOWN 10% over another period of time...
The Aug25 Calls might only drop 25% during the same period...

For another period MSFT might sit still for a week...
Their Aug25C's might also sit still (defying time decay gravity,)
Their Aug30C's may actually INCREASE, and
Their Sep30C's may DECREASE!!!

Why?
A) Implied Volatility
B) Supply & Demand (traders building & unwinding cross-hedged positions,)
C) Changes in economic interest rates triggering changes in A & B.

In my opinion, Options (which are, in actuality, my FAVORITE trading class) are a very, VERY sharp blade to be playing with because of their extremely deceptive complexity. If you do not understand what all the greeks are, what they mean, and how to calculate them (or even what I am referencing,) then you'll simply have no idea why others (like me) are taking your lunch away from you without you even knowing we are.

In order to learn to trade options, I would suggest;
A) 2+ years under the belt of straight security trading (using margin is fine... learning to think short, as well as long is required as well,)
B) Start with an Options account, when you are able, of NO LESS than $10,000,
C) Start to trade options with STOPS, never EVER risking more than $50 per position (including commissions and slippage,)
(If you're smart, you'll become addicted to the discipline and NEVER EVER trade without stops for the rest of your days!!!)

((And to my fellow delta-freaks... YES, I know option stops are hunted... but by the time she's ready she'll learn about stops contingent on an underlying, or cross-market.))

BEFORE you trade any more CASH in your accounts... I would invite you to do the following right here, on the boards;

A) Before tomorrow's open (or any trading day's open,) MAKE YOUR TRADE ENTRY ANNOUNCEMENTS HERE!!!

For example, say;
Buying 50 Lot MSFT Buy-Stop at 28.125,
IF FILLED, Sell-Stop at 26.4, and Sell-Stop at 32, OCO.

YOUR FAITHFUL BOARD (here) can referee whether you got filled, and when, for how may shares... according to the time & price prints available realtime & ennd of day.

If/When you get filled, and your safety & profit stops are NOT triggered by the end of trading day... you can then;
ANNOUNCE Trailing-Stop and Profit-Stop ADJUSTMENTS as orders to be laid on the next day.

Again, your faithful peanut gallery can hoot & holler & jeer & cheer you on... announcing fills or near-misses as the day progresses.

IN THIS MANNER, you will learn more than ANY seminar, videotape or CD/DVD course can ever teach.

This is how I created & tested my volatility arbitrage... in the days before discussion boards. I broadcast-emailed my charts, entry calls, stop calls, and position adjustments the night before each day to about 50 other traders. NOTHING makes you more honest than papertrading in advance, nekkid, with fellow traders cynically, hopefully & helpfully watching over your shoulder...

NOT EVEN REAL CASH TRADING... because you can always quietly go broke yet learn nothing!

SO... are you willing to give it a try?

I guarantee *I* will support you here!!!

Dave

(ANYONE ELSE WILLING TO SUPPORT OR TRADE!?! SPEAK UP (and gimme arec, for gadd's sake!!!)
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.