Getting an Education in Option Trading

When working on getting an education in option trading, there are a few avenues one can follow. You can teach yourself the basics by reading and researching or attending more formalized training courses. In either case, option trading is a discipline that involves a need for experience to really understand the subtleties involved. The most prepared theorist will find new and unexpected challenges in practice, and, as such, a real education means committing some capital and trading.

Reading the Books

The most common way to learn the basics of options trading is to buy a small collection of books on options trading and begin reading. Option trading is no different than most other disciplines in that there are a few books that are considered the bibles of the industry.

Everyone, from academics to practitioners, has a favorite and one of these books they are most likely to recommend. The best approach is to compare the styles of several popular choices by reading a section of each. When presented with highly technical information, most students will find one style distinctly preferable. What is most important to remember is that the basic knowledge in these books is unlikely to differ a great deal; each will be factually accurate and present the breadth of topics required to understand the topic.

Attending Classes

You may prefer to find a more formal training program. In most cases, the options exchanges, both in New York and Chicago, will offer such course at very modest costs. Private companies also offer such training, but the expense of this approach can be very high or require a commitment to trade one’s capital with the company doing the training. Thorough research and an ability to make an honest self-assessment of the value of such a course can guide you to the real value of taking this path.

Putting it to Work

Regardless of the approach taken, reading books for concepts or attending a class, there is no substitute for real trading experience. At the most basic level, the psychology involved in having capital at risk changes the experience significantly. Until a mistake costs money, theory seems very straightforward. Furthermore, most books and classes teach theory, while ignoring realities like broker commissions, slippage (the loss of the bid to ask spread), and other factors that real trades involved. The rationale is that these factors are not an integral part of the theory being taught. While there is an argument for the legitimacy of this position, when one goes to make a trade and confronts these issues, being unprepared can cost a significant amount of money.

As a result of the differences between theory and practice, it is advisable to start small and be prepared to learn many lessons by trial. In addition to being the only way to understand many of these issues, having these experiences helps to build the instincts that can differentiate a good trader from an average or poor one.

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