Contrary to popular way of sharing things that made options look very easy, I am going to share something that is NOT easy. Please don’t jump to the end of post, allow me to take you there slowly.

Today I am going to recommend something that has completely changed the way I looked at option. I am thankful to my friend Krishna S., founder of White Knight Capital who referred this amazing book to me.

A word of caution to beginner traders, please don’t buy it yet. Test the option strategy simulator I mentioned here, understand the strategies first and only then get into details. This book in my opinion assumes that reader already knows advance stuff (may not be advance from author’s perspective)

This book will test reader’s mettle. Generally speaking, I am an avid reader and can digest financial literature like yummy sweet-n-sour soup, but this book required patience and perseverance.

This book, titled “Options Trading: The Hidden Reality”, is written by Charles M Cottle, also known as Risk doctor and has been written from Market maker’s perspective. Charles was x-floor trader. He has also written other widely popular books in the investment circle (“Coulda, woulda, shoulda” and “Option: Perception and Deception). Once one understands the concepts and knows how market makers play options trading game, it certainly gives edge to the retail investor. This book extensively covers ‘position adjustments” and “hedging” as well. Slingshot hedging is one of the best examples that I used several times to convert a losing trade into profitable one.

Charles peeled Options like onions, layer after layer and has opened the hidden reality of option trading to common retail investor. I am again mentioning that it’s a tough book but once understood, one can create his/ her own adjustment plans on a piece of paper without even looking at Option simulator. My drawing skills are not good and hence I need a simulator. Jokes apart, the book helped me visualize options and adjustments graphically inside my brain.

I am not affiliated with the author. The only reward I can expect is referral fee from Amazon should you decide to buy as a token of appreciation for my portal. Whatever mode you choose, buy it on my portal or elsewhere, or borrow it from library but always keep a pen and paper with you. Please read it like a workbook and take your own time to understand the concepts.

The book has covered literally everything, from nuts and bolts of the options to advance strategies like strangles, straddles, verticals, collars, wingspread and so on. There is a special chapter on hybrid hedging as well. The best part of the book is option dialogue, real trade examples, trader’s mistakes and risk adjustment plans suggested by Charles.

Enjoy and I wish you profitable trading,

OptionPundit

Registred OP users, pls log in to view a real market neutral income trade example (Double diagonal) that I have opened for March expiration cycle.

Profitable trading, OptionPundit

90% of my portfolio is allocated to income trades. After finding opportunities only for 40% of portfolio so far, yesterday I was quite busy looking for good plays for March cycle and for the February expiration week. While I am happy with what I have invested so far but the search is on for more good income trades. Following my portfolio allocation guidelines, I didn’t invest more in the same trades even though I couldn’t find more opportunities. My March RUT Iron Condor is already delivering good profits giving me >20% of the credit within a week of opening the trade. Though there is still a long way in building wealth, I haven’t lost a single RUT Iron condor since I started trading Russell 2000 in October 2006. Average returns had been well above my desired target i.e. >20% per trade. 

There will be lot of buzz in the market this week as this is Feb Options’s expiration week and it offers several fabulous opportunities. I am surely looking for some nice plays including Google. This will be a great week from risk/reward point of view to all those chartists who want to play directional trades via spreads because the spread cost will be less compared to other calendar weeks (except in the case of straddles and strangles for the ones that are going to announce earnings).  There are lot of stocks that are going to see market activities due to earnings specially EYE, EXPD, NDAQ, MMM, NVDA, etc. Check out ivolatility to find out which ones are expected to move a lot. 

For today’s free tool for the OP readers, checkout the revamped beta site of briefing.com (the free one). For those who want to know, I have not signed-up for any packages nor have I affiliated with them. I like the free stuff and their free site meets my need. Of course there are no free lunches so the site is full of advertisements.  OP is on the lookout for opportunities, if you find some, don’t forget to share, Profitable trading, OptionPundit