myoptionsedge

[myoptionsedge]

The best books on options trading

As requested by some of you, here you have my list of the best options trading books. This is a good way to learn options trading. Especially its basics. But, if you want to reduce your learning curve, it is better to join a trading community or if you are more confident to learn proven options strategies.

Fortunately for options traders, there are many fantastic books on options trading to choose from which I can suggest and help you become a more knowledgeable and well-researched investor.

Here is my list of the best 6 books on options trading. There would be others, but for me, these ones are key to having a look at. You can get them at your preferred online library.

But, as I already told you, to learn options trading in a profitable way it is better to learn proven options strategies. These books will help you to consolidate your theoretical knowledge. Do not give you insights on how to trade profitably.

1. Trading Options For Dummies by Joe Duarte

Everyone has to start somewhere, and, for individuals interested in options trading, Trading Options for Dummies is the perfect book to learn the basic principles and strategies of the practice.

Joe Duarte is a former money manager, active private investor, and financial writer who uses his experience and knowledge to provide first-time options traders with a wealth of information to help them become more successful. Duarte will show you:

How to understand buying and selling options

Determine and manage your risk

Capitalize on sideways movements

Improve the value of your portfolio

This easy-to-understand guide is a great way to introduce yourself to the world of options trading and learn useful tips and techniques to make worthwhile investments.  Even if you’re an experienced trader you can pick up tips on using options with indexes, equities and ETFs. One of the top books on options trading.

2. Options as a Strategic Investment by Lawrence G. McMillan

In Options as a Strategic Investment, professional trader and author Lawrence G. McMillan shows how you can improve the earnings potential of your portfolio while minimizing risk.

This book provides novice and experienced investors with strong foundations in the properties and advantages of listed and non-equity options. With detailed explanations of techniques, buy and sell strategies, and in-depth analysis, this guide is sure to help you become a more successful investor.

Written for people with some familiarity with options, the author goes into detail of how the strategies are used in various situations, as well as why. The 5th edition was updated in 2012 and provides additional study guides and quizzes.

3. Option Volatility and Pricing by Sheldon Natenberg

At financial firms around the world, Option Volatility and Pricing by Sheldon Natenberg is used to educate new traders on the trading and risk management strategies necessary in order to become a successful options trader. This book is for the more advanced trader and is a must when you increase your options knowledge. One of the most recommended books on options trading.

In this book, Natenberg applies his incredible expertise in order to help new and advanced investors understand a variety of options trading principles, such as:

Option theory foundations

Risk analysis

Volatility contracts

Stock index futures and options

Option pricing models

In addition to the many other topics discussed in this book, these principles will help you become the knowledgeable options trader that you aspire to be.

While the book’s most recent publication was in 1994, the book still applies to today’s market. The book is geared more towards experienced options traders but is still written in a way that even novices can gain some insights.

4. Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits by Dan Passarelli

Though it’s not always necessary to understand option greeks, doing so gives traders a leg up in their analysis and investments. The option greeks – gamma, delta, theta, vega, and rho – are the techniques for executing trades and valuing options that you need in order to keep up with the always-changing options market.

In Trading Option Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits, Dan Passarelli, an experienced options trader, explains these techniques in simple terms and offers valuable insights into the options market. This book is regarded by many as an essential guide for both experienced and aspiring traders due to its ability to effectively explain how the option greeks can be used to facilitate profitable trading strategies.

Because the book delves a bit deeper into the technical aspects of options pricing, veteran traders will get more out of the material than novices.

5. The Option Trader’s Hedge Fund by Mark Sebastian, Dennis A. Chen

Offering an excellent business plan for options trading, The Option Trader’s Hedge Fund, written by Mark Sebastian and Dennis A. Chen, uses real-world examples to demonstrate how you can run your own personal hedge fund. This fantastic step-by-step guide shows you how you can set up a short option investment portfolio.

The presentation of this book’s core ideas makes it easy for beginner traders to understand the key principles of trading options. Their practical experiences as a hedge fund manager and options trading coach bring real-world lessons that supplement the practical steps to put the material in some context.

What’s interesting is this book covers more than just options trading, but how to set up business trading options.

6. The Options Playbook by Brian Overby

In his career as an options trading specialist, Brian Overby has worked with influential companies such as Charles Schwab, the Chicago Board Options Exchange, and Knight Trading Group.

In The Options Playbook, Overby has taken his immense experience and translated it into a straightforward, accessible explanation of all aspects of options trading. Throughout this book, you will learn to:

Execute trades at the right time

Break-even at expiration

Understand how market conditions affect an option’s price

Understand how time decay and implied volatility impact your trade

Recover from unexpected conditions

The latest edition of this book includes over 40 options strategies in order to help beginners enter the options trading market with their best foot forward. A bible as a book on options trading.

[myoptionsedge]

Ride Trade: The best options trading strategy

Ride trades are about 72% YTD and are delivering most of my trading account profitability. The strategy is being used in both SPY and QQQ ETFs and is the best options strategy for income. SPY options are one of the most liquid in the market. I prefer to use those assets because they are highly liquid and have 1 unit price intervals, which deliver great flexibility on adjustments. The Ride Trade is an advanced strategy that is highly consistent in most market conditions but performs very well in low volatility environments.

I developed this options strategy (no stock involved) after researching for a strategy that can be easily managed by someone who trades to have extra money at the end of the month. No need to be glued on the computer screen looking at price movements. This is another property of it that turns it the best options strategy. You can have your daily work and trade this strategy for 5-10min a day. That is enough! This is a medium-term options strategy that can be traded smoothly. As an example, no trades or adjustments were needed in the last week... The Ride Trades are composed of Calendar spreads, entered at specific price strikes. The Calendar Spread consists of selling a shorter-term option and covering it with a longer-term one, benefiting from the higher time decay of the front-month option. SPY options chain is available for several expirations, including weekly options.

But what are the characteristics of the "Ride Trade" that make it the best options strategy so far (even during the Feb/Mar market selloff)? And what about the positioning of the Calendars? And what expirations to choose that deliver high consistency and optimal time decay? SPY options chains are supporting this strategy given its flexibility discussed below.

1. Risk Management & strike price selection

This strategy is aiming Delta Neutral positioning which means it tries to minimize price fluctuations of the underlying keeping Theta at as maximum as possible at any given moment. Several adjustments are possible namely adding more positioned Calendars (or making Calendars Swaps to “ride” the price) to manage Delta or even using Vertical Spreads. Traders have some flexibility in their management but are always under clear guidelines. The goal is to flatten the t0 line maintaining Gamma low and Delta as close to 0 as possible. One key measure that is used to manage the trade and decide about adjustments is the Delta / Theta ratio. Keeping it low will be critical to deciding about the adjustments needed.

Our approach in terms of strikes selection for Calendars follows different criteria that adapt to market conditions at the moment the trade is entered. Instead of using prices and a fixed percentage from market price, we base our criteria by using Delta. This will deliver a Delta neutral position when entered where the distance from market price is variable which is dependent on IV levels. This is a different approach followed by most advanced options traders. As you probably know, when trading options, price is not a key variable. Implied Volatility is much more relevant than price. Price changes are everything for a stock trader; for an options trader, there is a multidimensional space where IV, expirations, etc are the space where we are moving.

One last thing to take into consideration in this strategy is the composition of the “trade structure” and we are not selecting equal amounts of Calendar spreads to deliver a true Delta Neutral position when using SPY Options (but can also be used with SPX and QQQ options).

2. Options chain selection

This topic is key to structuring the trade and is not so obvious for the majority of the option traders. The selection of the options chains to use on each Calendar Spread serves to avoid excessive fluctuations and adjustment needs but also delivers an attractive time decay (or Theta). Short-term options are much more volatile than longer-term ones. Shorter-term options deliver higher theta than longer-term ones. A combination of selective option chains delivers an ideal combination of reduced volatility of the structure and higher Theta. SPY options multiple expirations made this strategy very flexible. And this is the key that the Calendar Spreads mount. Another property that impacts this trade is the IV level of each option chain. If they are in backwardation, after a market selloff, it will help a lot in this trade! I invite you to read “The Secret Behind Calendar Spreads” – a pdf available on this topic that every option trader should know.

3. Theta positive (and “Vega positive”)

This strategy delivers positive Theta. This means that we do not need to be stressed about the market not moving (Delta) as time passes. In the Ride trades, we are on the right side as time passes, we are capturing profits. Being also a “Vega positive” structure it also benefits in case the market starts to fall, but not in an aggressive mode. This is also a property of Calendar Spreads. Looking at SPY options chains this impact can be seen.

4. Highly manageable price interval / flexible adjustments

Given its construction, this trade structure delivers a wide price interval of profitability where SPY and QQQ can fluctuate. Even in cases where there are bigger movements, there are adjustments to be made that add value to the trade with the goal of capturing more profits. In the case of a big market sell-off, it will help the trade because when we adjust using “Calendar Swap” we are averaging down the whole position cost.  This happened in the Covid crash. The fact that this trade requires adjustments in certain market conditions, it is advisable to have aside circa 100% available cash in case anything goes against and fast (volatility peak). In this case, there are additional cash needs to flatten Delta. But there are several adjustments possible and they are clearly stated in the strategy document! Again, SPY options chains have great flexibility to choose due to several expirations, including weekly options.

This type of trade is used by many market professionals. It is a mid to advanced level options trade type that mainly manages underlying price movements that present a low risk. I do not use it in stocks as these can have strong price variations due to unexpected news of earnings announcements. I prefer to be on the safe side and use index ETFs that are less prone to have 10%-15% price changes in a day.

This is the best options trading strategy. Period!

And, I can tell you that you can learn this options strategy, too, by taking its options course.

I am actively trading this strategy and you can access it through top-tier membership. It is available to purchase a pdf file that describes and teaches all the details of this strategy. All those membership students are also receiving my trades with my adjustments using the Discord channel available. And best of all, they can interact with me there to clarify any doubts.