Learning to Trade Options
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Options are one of those things that for many are hard to understand, and because of the lack of knowledge concerning them, most investors are reluctant to use.
To me there should never be any circumstance where someone should invest in options with more than a small portion of their money. Anything more than that and your no longer an investor but a gambler.
Having said that, Larry Stay over at Grow Your Funds, has an excellent primer on what options are, how they operate, and how to approach them.
Once you understand the risks and potential profits that using options can bring you, here is his advice as to what to do next:
"First, I would read the educational brochure produced by the CBOE (Chicago Board Options Exchange). It is required reading for any options trader."
"Second, I would sign up with one of the online discount brokers. I use Charles Schwab but there are many good ones. "
"Third, pick a stock. Decide if you are bullish on the stock or bearish on the stock. If you are bullish (positive) start to paper trade using the call option pricing available from your online broker. Do various trades, in the money, at the money, out of the money and far out of the money calls."
This is excellent advice. Basically the paper trade is a cost-free education in options that can give you the caution and confidence to enter into this area of investing, which, if done right, can give you very profitable rewards.
Check out his February posts on his blog to get a good primer on options.
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