When you wish to learn option trading strategies, it can be overwhelming to know where to start.
We would like to clarify that options trading can be as simple – or as complicated – as you make it: if your goal is to be successful in your options trader job, there’s no need to make it overcomplicated.
Still, most of those who choose options trading jobs are particularly fond of it, so they find reading about, and understanding, some of the deeper nuances of options trading as “fun”. If this is the case, here are some books that will keep you busy:
- If you wish to learn option trading strategies, you could focus first of all on some technical texts, like Options as a Strategic Investment, by Lawrence G. McMillan (and its Study Guide) which is considered by many to be the bible of option books. While it is about 1,000 pages, much of it is about more complex option strategies. It is well written with many clear examples. 200 pages or so will give you a fundamental understanding of a variety of option strategies and should they intrigue you, you can read more. Spend time reading it and then read it again. The latest edition (1,000+ pages) involves more complex products and strategies you may need later on.
- Option Volatility & Pricing: Advanced Trading Strategies and Techniques Updated by Natenberg, Sheldon is a comprehensive and maybe somewhat dry read. Anyway, you’re likely to end up highlighting half the book and having page markers and post-it notes throughout it. This is going to be a valuable book in your library and you could think of it as a textbook. There are 18 chapters covering everything from the basics of what an option is, to theoretical pricing models, to trading strategies. Odds are, you won’t read the entire book, as it won’t all be of interest to you (are you really going to be trading Intermarket volatility spreads? And do you see yourself putting on a jelly roll anytime soon? – and yes, that’s really a thing; page 231). That said, the book is loaded with examples and is nothing if not thorough.
- We can’t forget the classic by John Hull Options, Futures, and Other Derivatives, Global Edition, a good book to understand practical as well as theoretical part of options trading.
- Your Options Handbook: The Practical Reference and Strategy Guide to Trading Options (Wiley Trading), by Jared A. Levy could easily become your favourite options book. It’s well written, meaning it doesn’t come off as a textbook, and it engages the reader. There are 11 well thought-out chapters, starting with Market Basics and Market Mechanics, which if you think about it, is a pretty logical place for an options book to begin. It breaks down trading strategies from the basic to the slightly more complicated, to advanced and even more complicated. But it also offers up worthwhile advice on other aspects of trading as well, such as “Top 10 things professionals do that the average retail investor doesn’t“; lessons that will serve traders well in all aspects of their trading, not just in options. And again, there are examples on everything throughout the book. It also goes into the topic of Risk and Money Management, which is paramount – something every book on trading should pay homage to. There’s a section on Trading Tactics, where the subject heading is, “Take Kibbles and Bits, Not The Whole Pie“: this gives you a feel for the style here.
- Just to add one more very good book on options trading strategies, there is The Bible of Options Strategies: The Definitive Guide for Practical Trading Strategies by Guy Cohen. This book has extensively shown almost all the standard strategies and the impact of greeks also. Very thorough book on strategies.
Once you’ve been starting with a book that immerses you in the concepts, you will then be able to get more ideas of how to apply that learning in today’s markets on many good sites online. Don’t forget to look for learning opportunities provided by training companies, too.
Keep in mind that, as important as learning strategies, it is understanding fundamentally the theories around expected value, asymmetry of risk and risk management.
Remember also that you can understand everything about options, but you’ll have to understand how to measure risk or expected value; otherwise, you’ll find it quite difficult to make money and more often than not you will lose.