Best options trading books etf

Best options trading books etf Helping Traders Thrive. Enroll in an eCourse today! October 27, 2012 by Steve. I have had many traders asking me for my top option book picks over the years so I thought it would be a great blog topic. In my journey through reading hundreds of trading books these are my favorite 10 that benefited me the most in my option education over the years. I picked books that will not insult your intelligence by being too basic nor melt your brain with over complexity> I think these option books are just right. (I have many more that bored me to tears or that you could tell the author was a writer not an actual option trader by over looking the realities of option trading). After looking through my home library these are my top 10 picks. Show Me Your Options! I wrote this book for the stock trader trying to transition over from trading stocks to options as smoothly as possible. The option lessons are imbedded in a story narrative on a social media platform. This is a great place to start learning option pricing structures and option strategies. Get Rich With Options While the publisher chose an aggressive title for this book it does lay out four good option trading strategies. Selling puts on stocks that you want to own at lower prices anyway, option credit spreads, selling covered calls to create income on long term holdings, and my personal favorite: deep-in-the-money call options.

Very few ever discuss the power of buying deep-in-the-money call options where you control the full upside of a stock for less risk and with far less capital. The Bible of Option Strategies This is the encyclopedia of option strategies. You get a description of each method along with specific metrics for each one and the steps in creating it, the rationale to trade it, if it is net debit or credit, the effect of time decay on the method, appropriate time period, selecting the right stocks and options, risk profile, the Greeks, the advantages and disadvantages and how to best exit the trade. This book is meant as a reference book but I read it through cover to cover. Trading Stock Options Complete reverse from the above book, this is like the Cliff’s Notes of complex trading strategies. The author shows how he used real option trades for big profits and also had trades that were smaller losses. He simplifies many strategies to make them understandable especially playing long strangles and straddles through earnings by betting on actual post earnings volatility being greater than the volatility that is priced in to the options through Vega. Trading On Corporate Earnings This is a great book on how to best play holding through earnings announcements by using options instead of stock. The Option Traders Hedge Fund This book shows the reader how an actual hedge fund operates for profit using options to generate income much like an insurance company does by selling policies. Great analogy and interesting perspective. Generate Thousands In Cash on Your Stocks before buying or selling them This book is one of a kind in explaining how to generate income in selling options and also how to continually navigate option plays by adjusting positions by selling new options to offset current holdings. It is a different perspective and an interesting read. Options Trading: The Hidden Reality This book is like taking the red pill and entering option matrix but you have to be ready to understand it by fully grasping the option Greeks to fully appreciate it. The beauty of this book is how he explains the parallel risk structure of options that most never grasp.

One example is that selling a covered call and selling a naked put is virtually the same thing. In both plays you receive a small premium for taking on the entire downside risk in the stock. Short Spider Straddles: A Winning Combination This book is a great example of a simple robust trading method that wins in the long run through selling premium on both the long and short sides of a trade and letting the efficiency of implied volatility work in the option sellers favor. This book shows the historical long term double digit returns. But, alas this is no Holy Grail it is a profitable system when actual volatility is not more than two times implied volatility and while the SPY ETF has slower move on a percentage basis in most market environments during higher market volatility this system will lose and with no hedges in place the losses could be substantial like Black Monday 1987, the Fall of 2008, and the day of the 2010 flash crash. $TOCK OPTION $ I actually wrote the foreward to this book. It is a great introduction on how to sell option premium for profit by using short strangles and managing the position if it does move against you. It is a great primer for those that want to be a high probability winning option seller. Search. New Trader U Shop.

New Trader Rich Trader: 2nd Edition. New Traders are greedy and have unrealistic expectations Rich Traders are realistic about their… $3.99 Kindle edition. Principles of Profitable Trading. Steve Burns: After a lifelong fascination with financial markets, Steve Burns started investing in 1993, and trading his own accounts in 1995. It was … Read More. Moving Averages 101. If you've been thinking about advertising on Twitter, Steve is your guy! With more than 70,000 dedicated followers, Steve has some of the highest … Read More. Learn Options Trading with these 2 Great Books. Over the years I have read and reviewed many books on the market covering a variety of topics. When it comes to learning options trading specifically, there are two great books that I always recommend when talking to friends and family.

Yet, among the several dozen options trading articles here on the site, I realized I have never written a blog post on the books I enjoyed so much as a beginner and still reference today. The Options Playbook, 2nd Edition. This book is written by Brian Overby, the options guru from online broker TradeKing. What I love about this book is the opening few sections, which break down the basics of options in everyday terms, using loads of images to break through the over complex mumbo-jumbo. After introducing the basics of buying and selling, greeks, method, risk, etc. the rest of the book is dedicated to breaking down 40 different options strategies . What I enjoy most about this section of the book is the format. Each “play” is visualized with a giant graphic alongside a breakdown of the setup, who should run it (extremely important as experience really does matter), several tips, and finally method details. Fantastic for beginners, I highly recommend this book for those looking for a solid surface level intro to options. The only gripe is that it is only available in a spiral hard cover format, no paperback version or kindle version.

The Rookie’s Guide to Options, 2nd Edition. The book is written by a long time friend of mine, Mark Wolfinger, who wrote most of the options education articles for StockTradingToGo. The Rookie’s Guide to Options is longer and more in depth than The Options Playbook. Furthermore, the format is much more text heavy versus the visually friendly Options Playbook. Lastly, the book includes Quizzes at the end of each chapter which serve as a nice recap as you progress. Mark is a 23 year veteran of the CBOE (Chicago Board of Exchange) and has a very conservative approach to trading options. As such, Mark reflects this in his book, spending extensive time on conservative strategies such as covered calls, collars, and the like. With options being so complex, Mark’s focus is longevity and capital conservation, not getting rich quick, and that is a critical foundation for any new investor, not too mention veterans. The Rookie’s Guide to Options 350+ pages will take time to read as it is detailed and in depth, however I highly recommend it to all new investors who want to take options seriously and desire to be successful over the long haul. Other Valuable Resources. Join Over 22,000 Investors. Receive Weekly Market Recaps directly in your email inbox!

Log, Store, and Analyze Your Trades. Join over 22,000 investors and sign up today for our free weekly newsletter. Latest Market Recaps. ©2017 Reink Media Group LLC · All Rights Reserved. 7 Best ETF Trading Strategies for Beginners. Exchange-traded funds (ETFs) are ideal for beginning investors because of their many benefits likes low expense ratios, abundant liquidity, wide range of investment choices, diversification, low investment threshold, and so on (for more see Advantages And Disadvantages of ETFs). These features also make ETFs perfect vehicles for various trading and investment strategies used by new traders and investors. Here are our seven best ETF trading strategies for beginners presented in no particular order. 1. Dollar-Cost Averaging. We begin with the most basic method first. Dollar-cost averaging is the technique of buying a certain fixed dollar amount of an asset on a regular schedule, regardless of the changing cost of the asset. Beginner investors are typically young people who have been in the workforce for a year or two and have a stable income from which they are able to save a little each month.

Such investors should take a few hundred dollars every month and instead of placing it into a low-interest saving account, they should invest it in an ETF or a group of ETFs. There are two major advantages of such periodic investing for beginners. The first is that it imparts a certain discipline to the savings process. As many financial planners recommend, it makes eminent sense to pay yourself first, which is what you achieve by saving regularly. The second is that by investing the same fixed-dollar amount in an ETF every month—the basic premise of dollar-cost averaging feature—you will accumulate more units when the ETF price is low and fewer units when the ETF price is high, thus averaging out the cost of your holdings. Over time, this approach can pay off handsomely, as long as one sticks to the discipline. For example, say you had invested $500 on the first of each month from September 2012 to August 2015 in the SPDR S&P 500 ETF (SPY), an ETF that tracks the S&P 500 index. Thus, when the SPY units were trading at $136.16 in September 2012, $500 would have fetched you 3.67 units, but three years later, when the units were trading close to $200, a monthly investment of $500 would have given you 2.53 units. Over the three-year period you would have purchased a total of 103.79 SPY units (based on closing prices adjusted for dividends and splits). At the closing price of $210.59 on August 17, 2015, these units would have been worth $21,857.14, for an average annual return of almost 13%. Asset allocation, which means allocating a portion of a portfolio to different asset categories such stocks, bonds, commodities and cash for the purposes of diversification, is a powerful investing tool. The low investment threshold for most ETFs—generally as little as $50 per month—makes it easy for a beginner to implement a basic asset allocation method, depending on his or her investment time horizon and risk tolerance. As an example, young investors may be 100% invested in equity ETFs when they are in their 20s because of their long investment time horizons and high risk tolerance.

But as they get into their 30s and embark on major lifecycle changes such as starting a family and buying a house, they may shift to a less aggressive investment mix such as 60% in equities ETFs and 40% in bond ETFs. Swing trades are trades that seek to take advantage of sizeable swings in stocks or other instruments like currencies or commodities. They can take anywhere from a few days to a few weeks to work out, unlike day trades which are seldom left open overnight (see Pros & Cons Of Day Trading Vs Swing Trading). The attributes of ETFs that make them suitable for swing trading are their diversification and tight bidask spreads. In addition, because ETFs are available for many different investment classes and a wide range of sectors, a beginner can choose to trade an ETF that is based on a sector or asset class where he or she has some specific expertise or knowledge. For example, someone with a technological background may have an advantage in trading a technology ETF like the PowerShares QQQ Trust Series 1 (QQQ), which tracks the Nasdaq-100, or the iShares U. S. Technology ETF (IYW). A novice trader who closely tracks the commodity markets may prefer to trade one of the many commodity ETFs available, such as the PowerShares DB Commodity Index Tracking Fund (DBC). Because ETFs are typically baskets of stocks or other assets, they may not exhibit the same degree of upward price movement as a single stock in a bull market. But by the same token, their diversification also makes them less susceptible than single stocks to a big downward move. This provides some protection against capital erosion, which is an important consideration for beginners. ETFs also make it relatively easy for beginners to execute sector rotation, based on various stages of the economic cycle (see Sector Rotation: The Essentials). For example, assume an investor has been invested in the biotechnology sector through the Nasdaq Biotechnology ETF (IBB). With total returns of 327% over the preceding five years (as of August 21, 2015), the investor may wish to take profits in this ETF and rotate into a more defensive sector like consumer staples (based on the premise that the economic and bull market cycles were already extended as of August 2015). This can be easily accomplished by buying an ETF like the Consumer Staples AlphaDEX Fund (FXG).

Short selling, the sale of a borrowed security or financial instrument, is usually a pretty risky endeavor for most investors and hence not something most beginners should attempt (see How Risky Is A Short Sale). However, short selling through ETFs is preferable to shorting individual stocks because of the lower risk of a short squeeze--a trading scenario in which a security or commodity that has been heavily shorted spikes higher -- as well as the significantly lower cost of borrowing (compared with the cost incurred in trying to short a stock with high short interest). These risk-mitigation considerations are important to a beginner. Short selling through ETFs also enables a trader to take advantage of a broad investment theme. Thus, an advanced beginner (if such an obvious oxymoron exists) who is familiar with the risks of shorting and wants to initiate a short position in the emerging markets could do so through the iShares MSCI Emerging Markets ETF (EEM). However, please note that we strongly recommend beginners stay away from double-leveraged or triple-leveraged inverse ETFs, which seek results equal to twice or thrice the inverse of the one-day price change in an index, because of the significantly higher degree of risk inherent in these ETFs. (For more, refer to Short Selling ETFs by Fidelity Investments.) 6. Betting on Seasonal Trends. ETFs are also good tools for beginners to capitalize on seasonal trends. Let's consider two well-known seasonal trends.

The first one is called the sell in May and go away phenomenon. It refers to the fact that U. S. equities have historically under performed over the six-month May-October period, compared with the November-April period. The other seasonal trend is the tendency of gold to gain in the months of September and October, thanks to strong demand from India ahead of the wedding season and the Diwali festival of lights, which typically falls between mid-October and mid-November. The broad market weakness trend can be exploited by shorting the SPDR S&P 500 ETF (SPY) around the end of April or the beginning of May, and closing out the short position in late October, right after the market swoons typical of that month have occurred. A beginner can similarly take advantage of seasonal gold strength by buying units of a popular gold ETF, like the SPDR Gold Trust (GLD) or the Comex Gold Trust (IAU), in late summer and closing out the position after a couple of months. Note that seasonal trends do not always occur as predicted, and stop-losses are generally recommended for such trading positions to cap the risk of large losses. A beginner may occasionally need to hedge or protect against downside risk in a substantial portfolio, perhaps one that has been acquired as the result of an inheritance. Suppose you have inherited a sizeable portfolio of U. S. blue chips and are concerned about the risk of a large decline in U. S. equities. One solution is to buy put options. However, since most beginners are not familiar with option trading strategies, an alternate method is to initiate a short position in broad market ETFs like the SPDR S&P 500 (SPY) or the SPDR Dow Jones Industrial Average Units Series 1 (DIA). If the market declines as expected, your blue chip equity position will be hedged effectively since declines in your portfolio will be offset by gains in the short ETF position. Note that your gains would also be capped if the market advances, since gains in your portfolio will be offset by losses in the short ETF position. Nevertheless, ETFs offer beginners a relatively easy and efficient method of hedging.

Exchange-traded funds have many features that make them ideal instruments for beginning traders and investors. Some ETF trading strategies especially suitable for beginners are dollar-cost averaging, asset allocation, swing trading, sector rotation, short selling, seasonal trends and hedging. Best Trading Books. Creating trading success also has to come from many angles. When I am asked about what option trading books to read, it's complicated. With that in mind, here is my list of recommended trading books. Books on Options Trading. This is my "go-to" book for new option traders. Natenberg does a good job explaining option trading through the lens of volatility, which is a perspective many don't think about when they start to trade options. This also has the full listing of basic option strategies and management techniques associated with them. The Volatility Edge in Options Trading - Augen.

Anything by Jeff Augen is worth a read. This particular text goes a bit more into the nasty bits of options trading-- namely defining volatility and managing trades. This goes a bit more into the quantitative side, which can be fun if you know your way around excel or R. Volatility Trading - Sinclair. Are you ready to go way down the rabbit hole? Sinclair has a ton of heavy math, along with real-world examples. This book brings insight into how hedge funds and derivatives desks actually play the options market. There's a good chapter on how to properly plan your trades, and a surprising amount of insight into trading psychology. Options as a Strategic Investment - McMillan. This is the bible of options trading. It's tough to get through and sometimes sections won't apply to your trading style, but it's great to have on hand as a reference, especially if you have a longer term timeframe in mind. Options, Futures, and Other Derivatives - Hull.

I didn't really want to put this one on the list because I don't think it serves traders very well. But since it's a required text for many college classes, it's good to know about it-- you will gain the perspective of all the MBAs you'll be trading against. Technical Analysis of Stock Trends - Edwards and Magee. Edwards and Magee is the definitive source for technical analysis. It goes beyond the pattern and explains the underlying supply and demand dynamics. This book is in its 8th edition, which shows you the staying power of the content. Evidence Based Technical Analysis - Aronson. EBTA will take evrything you just learned with Edwards and Magee and tear it down. This book shows that there is a ton of pseudoscience attached to traditional technical analysis, and patterns don't always have a statistical edge. This book will teach you how to properly get an edge in the market. To be honest, I was really uncomfortable reading this book as I do incorporate TA into my trading-- if anything I now have a respect for when patterns fail. Trading and Exchanges - Harris.

The amount of caffeine I needed to read this book could kill a small village in Bhutan. But this one you have to read if you are to understand how exchanges operate. If you trade at all in a shorter term timeframe this will give you insight not found in any other book about how the market operates. One Good Trade - Bella. If you want to learn about the markets from the perspective of a prop firm, Bella will give you what you want. There is a ton of wisdom on these pages, and plenty of narratives to make this an easy read. There's very little information out there on the art of tape reading, and OGT will give you a rundown of how it works. Mind Over Markets - Dalton. I believe one of the most underutilized forms of analysis is market profile. It's a dark art, and there isn't much literature on it. But this book is a must read.

It's a struggle to read at times but I often review chapters every so often to understand the short term market. Markets in Profile - Dalton. This is the second book you must read on Market Profile, and it's a little more up to date compared to MoM. There's a little more integration with newer behavioral finance stuff and neuroeconomics. Seriously, you must understand auction market theory if you want to learn to trade. Mastering the Trade - Carter. The setups are a bit outdated, but this holds a special place with me as it first introduced me to derivatives trading. This has a little bit of everything, including some trading psych, analyzing the TICK, and dayswing trading setups. Trading Psychology Books. The Psychology of Trading - Dr. Brett.

If you haven't read anything by Dr. Brett you are doing yourself a disservice. I love this book because the author comes from a background of Clinical Psychology focusing on high-performing individuals. The anecdotes easily crossover into the trading realm, and you can gain plenty of insights about yourself and your trader profile. The Daily Trading Coach - Dr. Brett. Treat this book like a daily devotional. Dr. Brett smartly broke up the book into 101 lessons. Read one lesson per day and see how you could implement it in your trading. Continual, incremental self-improvement will do wonders for your performance. Trade Your Way to Financial Freedom - Tharp. If you ever wanted the best way to track your performance, you will learn it here. The book discusses the concept of "R-multiples," which I believe is critical for traders and investors to understand. Tharp focuses not on the individual setups but how to approach them from a risk-oriented approach.

Trading in the Zone - Douglas. This one seems to always show up on lists. It's a great weekend read that can get you motivated to take on the market again, and how to get into the proper trading state. This book will tell you a ton of things that you already know but you need to hear anyways. If you have trouble defining and accepting risk, this book is for you. Letters from a Stoic - Seneca. A nervous, fatalistic, pessimistic personality is not the right kind of profile you want to have as a trader. These letters from Seneca taught me how to accept randomness, embrace risk, and focus on the things that are important in my life. Books on Performance. The Talent Code - Coyle. A great way to get better at the markets is to see how others become great in other fields. There are a ton of parallels, and this book gives you the steps necessary to become great in a trade.

In-depth practice, self-corrective mistakes, and proper coaching are the true keys to talent. Flow - Csikszentmihalyi. Have you ever felt joy while trading? You were fully immersed in the market and in a state called "Flow." This book goes into the psycholgoical components of flow and how to stay there longer. Being in "Flow" during trading significantly increases your performance. How Traders Acheive Creative Flow - Bigger. This book by Michael Bigger is what caused me to read "Flow" in the first place. It's a quick read and it goes over how to properly get into the mental state to develop as a trader. As the title says, trading can be a very creative endeavor and this book will show you how. The Four Hour Work Week - Ferriss. I was a little hesitant to put this one on here. I'm a card carrying member of the Cult of Tim Ferriss, and I don't mind saying it. What's good about this book is that it focuses on elimination.

80% of your trading gains will come from 20% of your perceived market information. If you focus on that 20% and remove all the extraneous stuff. Top 5 Books to Become an Option Trader. Many consider options trading an unfamiliar and daunting area of investing. Fortunately, there are plenty of excellent books written on the subject to help traders understand the options markets and learn to trade them profitably. Here are five of the best available books that provide a clear education on options trading, as well as instruction on using various option trading strategies. "Option as a Strategic Investment," by Lawrence McMillan. Considered by many to be the Bible of options trading, Lawrence McMillan’s classic from 1980, “Options as a Strategic Investment,” provides traders with practical option trading strategies designed to minimize risk and maximize the profit potential for an investment portfolio. At over 1,000 pages, the book is an exhaustive reference on trading options. It contains information on the concept of using options investments, specific option strategies and market conditions in which they tend to work best, obtaining the best possible riskreward position for an investment portfolio, using options as a hedge, and how tax laws apply to option trading profits or losses. The book also offers detailed advice on trading index options, trading options on futures, and measuring and utilizing market volatility.

Further, McMillan provides extensive examples and illustrations of numerous option trading strategies. "Option Volatility and Pricing," by Sheldon Natenberg. Understanding market volatility and its relation to option pricing is key to helping traders conceptualize option pricing and evaluate fair value in the options market. Sheldon Natenberg’s “Option Volatility and Pricing” is considered one of the best volumes on this critical aspect of option trading. Natenberg provides a clear, solid explanation of theoretical option pricing models, followed by instruction in specific trading strategies that have historically been the most profitable in various market conditions. He provides a wealth of material on risk management and evaluating trading opportunities in options, and even includes material on creating your own option trading strategies. Natenberg presents his material in a clear, easy-to-follow manner and helps readers to understand the key concepts involved in trading options, such as the relation of options to their underlying asset, volatility, and option pricing and the time value of options. "Fundamentals of Futures and Options Markets," by John Hull. Options trading is particularly popular with traders who regularly trade the commodity futures markets. John Hull's "Fundamentals of Futures and Options Markets," which is considered a companion text to his “Options, Futures and Other Derivatives,” offers a clear understanding of the futures and options trading markets. Hull is a widely recognized authority on derivatives, futures and risk management who has served as a consultant to many of the best-known investment banking firms. Considered an excellent reference work for both beginners and seasoned option traders, Hull’s book includes information on swaps and other derivative instruments, trading interest rate futures and estimating the time value of options, all presented in an easy-to-follow manner. "Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits," by Dan Passarelli. A large part of mastering options trading lies in understanding what are referred to as the “Greeks.

" The “Greeks” are the Greek terms delta, theta, vega and rho, which refer to, respectively, option price movement in relation to underlying asset price movement, time value of options, volatility-related option price changes, and option price movements caused by changes in the risk-free interest rate, commonly equated with the yield on U. S. Treasury bills. Passarelli's book explains the impact that each of these factors has on option values and presents various option trading strategies that seek to profit from changes in any or all of the “Greeks.” Passarelli aims to provide traders with the necessary knowledge and tools to more accurately evaluate option pricing, as well as better identify a variety of profit opportunities available through the skillful use of options trades. "The Option Trader's Hedge Fund," by Mark Sebastian and Dennis Chen. “The Option Trader’s Hedge Fund,” penned by Mark Sebastian and Dennis Chen in 2012, offers traders an option trading business model to earn consistent profitable returns from options trading. In the book, option trading coach Sebastian and hedge fund manager Chen provide a step-by-step plan for setting up a short option investment portfolio, designed to generate steady income from selling, or writing, options. Sebastian and Chen present the idea of essentially setting up your own individual hedge fund as an options trader. The book’s numerous examples and illustrations make it easy for even a novice options trader to understand the option trading strategies presented. The authors offer especially helpful advice on the key options trading elements of risk management and volatility. Why I Trade ETF Options. In many of my trades and examples, I've chosen to trade ETF options rather than stock or index options. Why? I have three basic reasons why I prefer them. I'll get into that in a little bit.

Before I do, I want to provide some basic background on ETFs, what they are and how they compare to stocks. First the basics. ETFs, short for Exchange Traded Funds can be thought of as a kind of mutual fund that is traded on a regular stock exchange - just like a stock. On the outside, they seem pretty straightforward but behind the scenes, there is a little bit of complexity that goes into creating and managing an ETF. An ETF is usually made up of representative stocks held in a trust and managed by large institutions like Merrill Lynch, Vanguard, Barclays, State Street and so on. Like mutual funds, ETFs may represent a bundle of stocks in a given index, sector or asset class. They are often subject to a small management fee similar to mutual funds but usually much smaller. Unlike mutual funds, ETFs trade like a stock. That means any brokerage where you can trade stocks, you can also trade ETFs. Also, unlike mutual funds, you are not subject to hidden capital gains taxes. Capital gains are calculated based on when you bought the ETF and when you sold it. period. Here's the nice part. Like stocks, many ETFs have options. That means I can trade options on the broad market much like trading index options.

ETF options usually trade like stock options, which means they are 'American style' options that can be assigned at any time, stop trading the third Friday of the month and expire at noon the next day. So, enough chit chat about the ETFs themselves. To find out more about the details of ETFs and ETF options, check out the following sites. Three reasons I trade ETF Options. As promised, here are some reasons why I like to trade ETF options. Given time, I could probably think of some more but when I explain to people why I trade them, I usually end up with these three key reasons. 1. ETF options are more diverse than individual stock options. As I mention on my index option page, I have become more of a fan of trading the broad market. While there may be stronger up and down moves on individual stocks, there are less surprises with the indices and ETFs. On the index option page, I've also mentioned some of the disadvantages of trading index options, which naturally makes ETF options a great alternative. With ETFs I practically have the ability to trade anything as if it were a stock.

Just to bring it down to earth, let me give some examples. Let's say I wanted to trade something really broad and diverse. I simply choose to trade the SPY, an ETF representing the S&P 500. Another good broad index is the Russell 2000 - that's 2000 small cap stocks in this index. I trade the IWM, the ETF that represents the Russell 2000. What about a sector? Let's say I want to trade the financial sector. XLF represents stocks in the financial sector. Home builders? That would be the XHB.

What about a commodity like gold, silver or oil? That would be GLD, SLV or USO. How about emerging markets? Or, what about a specific emerging country? EEM represents a basket of stocks for all emerging markets. EWZ (an ETF who's options I've traded) represents just a basket of Brazilian stocks. There are new ETFs being created practically every day. It isn't difficult to find one to represent an asset class I'm interested trading. The trick is finding one that meets my criteria for trading options on it. More on this later. 2. Many ETFs and their options trade large volumes. Many, but not all ETFs trade in high volumes. This is particularly true of the ETFs that represent broad market indices.

More and more institutions, as well as retail traders are becoming interested in trading them. As a result, many ETFs trade at volumes equal to and greater that some of the most popular stocks. Given that the ETF itself trades high volumes, the options are often traded in large volumes as well. This can be determined by looking at the open interest for any given strike in a given month. Large open interest translates to highly liquid, which means really tight bidask spreads and good fills. What I mean by good fills is that when I set an order price right between the bid and the ask, I often get filled fairly quickly. When large numbers of options are traded at any given time, market makers are often motivated to take my offer simply to get my order out of the way so they can take larger orders - a good reason to make sure my order size is a very small percentage of the open interest. 3. ETF options often trade in $1 strike increments. One of my favorite features of trading ETF options is that they often trade in $1 wide strike increments, regardless of the price of the underlying. I didn't notice this as much when I was trading stock options more regularly.

However a friend and I were recently considering a spread trade on AAPL. If you've been following my trade of the week tutorials or read the vertical spread method pages, you know I like to sell the short strike with a probability of success between 60% and 70%, which means I need to find a strike with a probability of expiring in the money of 30%-40%. And I typically prefer 30%-35% if I can get it. What I found looking at the option chain for AAPL is that with $5 strike increments, it was difficult to find a strike I wanted. One was too high of a probability and the next one was too low. It made me realize I hadn't really had that problem with ETF options because most of the ones I trade are $1 increments. It's pretty easy to find just the one I want. Risks of trading ETFs. As with any trading vehicle, ETFs and ETF options pose some risks and it's important to be aware of and manage them. One risk is the the same as trading any mutual fund, index or even a stock. The market can turn and I can loose money. The nice thing about ETFs is that, just like a stock, I can set stops and limits and be out immediately. The same goes for options on the ETF. The main risk I think about when considering ETFs is that I don't know the exact mechanics of that ETF in terms of how it is valued and how it behaves relative to the basket of assets it represents. This can affect the results of an option trade based on that particular ETF.

Another thing to be aware of is that some of the reverse ETFs and leveraged ETFs can behave unexpectedly. The combination of leverage on the ETF plus leverage on the options can drain your trading account. The main way to overcome or manage these risks is to be well educated on the ETF you are trading. Every ETF has a prospectus, much like a mutual fund so it's pretty easy to research the ETF to determine if it is one worth trading. Additionally, it is a good idea to spend some time following the ETF and perhaps paper trading with it before going 'live'. Finding an ETF to trade. I have my favorite ETFs that I like to trade and I use them over and over again, regardless of the direction they are moving. If you are just starting out, you may be wondering where to find ETFs that make good option trading candidates. Here are some basic steps to take. Research - use the websites I'll list at the end of this page to locate good ETFs. In addition, you may find your broker provides some good research tools as well. Make sure to know things like what comprises the ETF, what management costs are, and how it is valued Eliminate ETFs that trade lower volumes - By lower volume, I'd say anything that trades less than about 1 million sharesday (average) is too low. Eliminate ETFs where the front month option open interest is low - By too low, I mean that the open interest should be large enough that an your order makes up only a small percentage Monitor broad index trends as well as sector trends - know what sectors are relatively weak and which are relatively strong Begin trading just a few - Start with broad index ETF options like SPY, DIA and QQQQ, get to know them and slowly add to the list a few at a time.

You don't need too many - just a few you know really well. Also, be sure to check out a video I recently released on YouTube on Finding Optionable ETFs. Finally, here are a list of good websites that can be used to research ETFs. Remember to make sure you not only know what index, sector or asset class it represents but how it behaves. Related Topics. Newsletter Subscription. Check out these full length videos that contain lots of specific information about trading spread strategies at an excellent value. Free video tutorials. I set up and discuss the trades and then follow them up with periodic reviews until they close. For more detail go to the Options Trading Videos page. Vertical spread tutorial. Calendar spread tutorial. Iron Condor tutorial. Diagonal Spread Tutorial.

Copyright 2008-2014 success-with-options. com. All Rights Reserved. Information on this site is for educational purposes only. Best options trading books etf Helping Traders Thrive. Enroll in an eCourse today! October 27, 2012 by Steve. I have had many traders asking me for my top option book picks over the years so I thought it would be a great blog topic. In my journey through reading hundreds of trading books these are my favorite 10 that benefited me the most in my option education over the years. I picked books that will not insult your intelligence by being too basic nor melt your brain with over complexity> I think these option books are just right. (I have many more that bored me to tears or that you could tell the author was a writer not an actual option trader by over looking the realities of option trading).

After looking through my home library these are my top 10 picks. Show Me Your Options! I wrote this book for the stock trader trying to transition over from trading stocks to options as smoothly as possible. The option lessons are imbedded in a story narrative on a social media platform. This is a great place to start learning option pricing structures and option strategies. Get Rich With Options While the publisher chose an aggressive title for this book it does lay out four good option trading strategies. Selling puts on stocks that you want to own at lower prices anyway, option credit spreads, selling covered calls to create income on long term holdings, and my personal favorite: deep-in-the-money call options. Very few ever discuss the power of buying deep-in-the-money call options where you control the full upside of a stock for less risk and with far less capital. The Bible of Option Strategies This is the encyclopedia of option strategies. You get a description of each method along with specific metrics for each one and the steps in creating it, the rationale to trade it, if it is net debit or credit, the effect of time decay on the method, appropriate time period, selecting the right stocks and options, risk profile, the Greeks, the advantages and disadvantages and how to best exit the trade.

This book is meant as a reference book but I read it through cover to cover. Trading Stock Options Complete reverse from the above book, this is like the Cliff’s Notes of complex trading strategies. The author shows how he used real option trades for big profits and also had trades that were smaller losses. He simplifies many strategies to make them understandable especially playing long strangles and straddles through earnings by betting on actual post earnings volatility being greater than the volatility that is priced in to the options through Vega. Trading On Corporate Earnings This is a great book on how to best play holding through earnings announcements by using options instead of stock. The Option Traders Hedge Fund This book shows the reader how an actual hedge fund operates for profit using options to generate income much like an insurance company does by selling policies. Great analogy and interesting perspective. Generate Thousands In Cash on Your Stocks before buying or selling them This book is one of a kind in explaining how to generate income in selling options and also how to continually navigate option plays by adjusting positions by selling new options to offset current holdings. It is a different perspective and an interesting read. Options Trading: The Hidden Reality This book is like taking the red pill and entering option matrix but you have to be ready to understand it by fully grasping the option Greeks to fully appreciate it. The beauty of this book is how he explains the parallel risk structure of options that most never grasp. One example is that selling a covered call and selling a naked put is virtually the same thing. In both plays you receive a small premium for taking on the entire downside risk in the stock. Short Spider Straddles: A Winning Combination This book is a great example of a simple robust trading method that wins in the long run through selling premium on both the long and short sides of a trade and letting the efficiency of implied volatility work in the option sellers favor. This book shows the historical long term double digit returns.

But, alas this is no Holy Grail it is a profitable system when actual volatility is not more than two times implied volatility and while the SPY ETF has slower move on a percentage basis in most market environments during higher market volatility this system will lose and with no hedges in place the losses could be substantial like Black Monday 1987, the Fall of 2008, and the day of the 2010 flash crash. $TOCK OPTION $ I actually wrote the foreward to this book. It is a great introduction on how to sell option premium for profit by using short strangles and managing the position if it does move against you. It is a great primer for those that want to be a high probability winning option seller. Search. New Trader U Shop. New Trader Rich Trader: 2nd Edition. New Traders are greedy and have unrealistic expectations Rich Traders are realistic about their… $3.99 Kindle edition. Principles of Profitable Trading. Steve Burns: After a lifelong fascination with financial markets, Steve Burns started investing in 1993, and trading his own accounts in 1995. It was … Read More.

Moving Averages 101. If you've been thinking about advertising on Twitter, Steve is your guy! With more than 70,000 dedicated followers, Steve has some of the highest … Read More. Why I Trade ETF Options. In many of my trades and examples, I've chosen to trade ETF options rather than stock or index options. Why? I have three basic reasons why I prefer them. I'll get into that in a little bit. Before I do, I want to provide some basic background on ETFs, what they are and how they compare to stocks. First the basics.

ETFs, short for Exchange Traded Funds can be thought of as a kind of mutual fund that is traded on a regular stock exchange - just like a stock. On the outside, they seem pretty straightforward but behind the scenes, there is a little bit of complexity that goes into creating and managing an ETF. An ETF is usually made up of representative stocks held in a trust and managed by large institutions like Merrill Lynch, Vanguard, Barclays, State Street and so on. Like mutual funds, ETFs may represent a bundle of stocks in a given index, sector or asset class. They are often subject to a small management fee similar to mutual funds but usually much smaller. Unlike mutual funds, ETFs trade like a stock. That means any brokerage where you can trade stocks, you can also trade ETFs. Also, unlike mutual funds, you are not subject to hidden capital gains taxes. Capital gains are calculated based on when you bought the ETF and when you sold it. period. Here's the nice part. Like stocks, many ETFs have options. That means I can trade options on the broad market much like trading index options. ETF options usually trade like stock options, which means they are 'American style' options that can be assigned at any time, stop trading the third Friday of the month and expire at noon the next day. So, enough chit chat about the ETFs themselves.

To find out more about the details of ETFs and ETF options, check out the following sites. Three reasons I trade ETF Options. As promised, here are some reasons why I like to trade ETF options. Given time, I could probably think of some more but when I explain to people why I trade them, I usually end up with these three key reasons. 1. ETF options are more diverse than individual stock options. As I mention on my index option page, I have become more of a fan of trading the broad market. While there may be stronger up and down moves on individual stocks, there are less surprises with the indices and ETFs. On the index option page, I've also mentioned some of the disadvantages of trading index options, which naturally makes ETF options a great alternative. With ETFs I practically have the ability to trade anything as if it were a stock. Just to bring it down to earth, let me give some examples.

Let's say I wanted to trade something really broad and diverse. I simply choose to trade the SPY, an ETF representing the S&P 500. Another good broad index is the Russell 2000 - that's 2000 small cap stocks in this index. I trade the IWM, the ETF that represents the Russell 2000. What about a sector? Let's say I want to trade the financial sector. XLF represents stocks in the financial sector. Home builders? That would be the XHB. What about a commodity like gold, silver or oil? That would be GLD, SLV or USO. How about emerging markets? Or, what about a specific emerging country? EEM represents a basket of stocks for all emerging markets.

EWZ (an ETF who's options I've traded) represents just a basket of Brazilian stocks. There are new ETFs being created practically every day. It isn't difficult to find one to represent an asset class I'm interested trading. The trick is finding one that meets my criteria for trading options on it. More on this later. 2. Many ETFs and their options trade large volumes. Many, but not all ETFs trade in high volumes. This is particularly true of the ETFs that represent broad market indices. More and more institutions, as well as retail traders are becoming interested in trading them. As a result, many ETFs trade at volumes equal to and greater that some of the most popular stocks. Given that the ETF itself trades high volumes, the options are often traded in large volumes as well. This can be determined by looking at the open interest for any given strike in a given month. Large open interest translates to highly liquid, which means really tight bidask spreads and good fills. What I mean by good fills is that when I set an order price right between the bid and the ask, I often get filled fairly quickly.

When large numbers of options are traded at any given time, market makers are often motivated to take my offer simply to get my order out of the way so they can take larger orders - a good reason to make sure my order size is a very small percentage of the open interest. 3. ETF options often trade in $1 strike increments. One of my favorite features of trading ETF options is that they often trade in $1 wide strike increments, regardless of the price of the underlying. I didn't notice this as much when I was trading stock options more regularly. However a friend and I were recently considering a spread trade on AAPL. If you've been following my trade of the week tutorials or read the vertical spread method pages, you know I like to sell the short strike with a probability of success between 60% and 70%, which means I need to find a strike with a probability of expiring in the money of 30%-40%. And I typically prefer 30%-35% if I can get it. What I found looking at the option chain for AAPL is that with $5 strike increments, it was difficult to find a strike I wanted. One was too high of a probability and the next one was too low. It made me realize I hadn't really had that problem with ETF options because most of the ones I trade are $1 increments. It's pretty easy to find just the one I want. Risks of trading ETFs. As with any trading vehicle, ETFs and ETF options pose some risks and it's important to be aware of and manage them. One risk is the the same as trading any mutual fund, index or even a stock.

The market can turn and I can loose money. The nice thing about ETFs is that, just like a stock, I can set stops and limits and be out immediately. The same goes for options on the ETF. The main risk I think about when considering ETFs is that I don't know the exact mechanics of that ETF in terms of how it is valued and how it behaves relative to the basket of assets it represents. This can affect the results of an option trade based on that particular ETF. Another thing to be aware of is that some of the reverse ETFs and leveraged ETFs can behave unexpectedly. The combination of leverage on the ETF plus leverage on the options can drain your trading account. The main way to overcome or manage these risks is to be well educated on the ETF you are trading. Every ETF has a prospectus, much like a mutual fund so it's pretty easy to research the ETF to determine if it is one worth trading. Additionally, it is a good idea to spend some time following the ETF and perhaps paper trading with it before going 'live'. Finding an ETF to trade. I have my favorite ETFs that I like to trade and I use them over and over again, regardless of the direction they are moving. If you are just starting out, you may be wondering where to find ETFs that make good option trading candidates.

Here are some basic steps to take. Research - use the websites I'll list at the end of this page to locate good ETFs. In addition, you may find your broker provides some good research tools as well. Make sure to know things like what comprises the ETF, what management costs are, and how it is valued Eliminate ETFs that trade lower volumes - By lower volume, I'd say anything that trades less than about 1 million sharesday (average) is too low. Eliminate ETFs where the front month option open interest is low - By too low, I mean that the open interest should be large enough that an your order makes up only a small percentage Monitor broad index trends as well as sector trends - know what sectors are relatively weak and which are relatively strong Begin trading just a few - Start with broad index ETF options like SPY, DIA and QQQQ, get to know them and slowly add to the list a few at a time. You don't need too many - just a few you know really well. Also, be sure to check out a video I recently released on YouTube on Finding Optionable ETFs. Finally, here are a list of good websites that can be used to research ETFs. Remember to make sure you not only know what index, sector or asset class it represents but how it behaves. Related Topics. Newsletter Subscription. Check out these full length videos that contain lots of specific information about trading spread strategies at an excellent value. Free video tutorials.

I set up and discuss the trades and then follow them up with periodic reviews until they close. For more detail go to the Options Trading Videos page. Vertical spread tutorial. Calendar spread tutorial. Iron Condor tutorial. Diagonal Spread Tutorial. Copyright 2008-2014 success-with-options. com. All Rights Reserved. Information on this site is for educational purposes only.