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A Word from the Author
My personal trading story and some words of encouragement for those just getting started
Enter the World of Options
Chess, Not Checkers
As I researched basic option concepts I stumbled across a website called Tastytrade, an online network that discusses trading strategies, risk management mechanics, statistics & probabilities, self-directed investing, and entrepreneurship 8 hours/day, 5 days/week. I was blown away. I felt as though I'd finally found the pieces to my chess board. I became fascinated with a series that featured tastytrade's creator, Tom Sosnoff, teaching his daughter the ins and outs of the trading business. For weeks I did nothing but watch Tastytrade tutorials and drill option strategies into my mind. I learned what options were, how they worked, how to calculate and manage risk, and how to develop my
The concepts I learned felt freeing. If I were to compare trading to eating a meal, options would be like the utensils. Sure, you can eat without them and sometimes that's necessary. For the most part, however, they keep your dining experience clean and efficient. Tastytrade showed me how I could "dine" properly. It is, by far, the most helpful resource I know and is an excellent reference for beginners and experienced traders alike. Up until this point I had no choice but to buy products, often at record high values, and pray they continued to set new records. I could barely afford more than a couple shares of the most well-known companies, and I had no way to defend myself when stocks went down.
Options on Options
I often wondered what I would do if a financial crisis like 2008 struck during my retirement age. Would I just have to accept loss and hope the market would recover in the years to come? After learning a bit about options, this no longer felt like the case.
Not only could I bet on stocks going up, I could also bet on them going down or not moving at all. I could defend losers by adjusting my positions. Instead of risking oversized losses I could and allow losers to recover without fear of losing more than I was comfortable with. Options also opened the door to products that were normally too expensive for me to trade. For example, if I wanted to trade a product that cost over $1000/share, options allow the opportunity to do so with smaller amounts of capital and limited, predefined risk.
These were just a few of the many functions possible with options. Perhaps the most useful, however, is the ability to calculate and adjust a trade's probability of success by skewing the balance of risk and reward. For higher odds of success, I could risk more money to make less. If I wanted to risk very little to make a lot, I could do so in exchange for a lower probability of success. The rules were clear, the strategies were diverse, and the game suddenly made total sense.