How to read strike/put options?

[scp]

I've still got a little more reading up on options, but I was wondering how I should read into call/put options.

For example, if I'm looking at JNJ, it looks like more investors are expecting it to go down in the next several months, so I've changed my trade order from $53 to $49- I realize I'm trying to time the market, which is impossible, but I'm just trying to learn how much of my logic should be placed in making investing decisions.

Also, what percentage of investors read the message board? I know there's a bit of trash to go through, but is anyone else guilty of reading them?

[Broken Arrow]

I can't help much because I don't do options, and have no plans to get involved anytime soon.

However, I hear that this is something every beginning options traders should read.

I usually just click the "new posts" link, so I will get see all the new posts that have been made, regardless of where it's located (except I think the coupons section).

Also, do you mean "investors" or "traders". There is a difference, and what we are talking about here and lately is not investing. We are traders, maybe even gamblers, and it's important to accept that and understand why. If not, we could end up losing a lot of money, going in with the wrong perspective and even trading strategy (which is how I started out, and lost a bunch of money).

[disneysteve]

I realize I'm trying to time the market, which is impossible

what we are talking about here and lately is not investing

Bingo! scp, you've started several threads recently that are all about market timing, though you haven't expressed it as such. Bottom line, as you note, is that timing the market is impossible. It can be a fun game to play for a while, but it is not investing. It is speculating. Some people liken it to casino gambling, but I think that does the casinos a disservice. When I go to the casino, I know exactly what my odds are. At the blackjack table, for example, I know the house has a 0.6% edge. Do you know your odds when you make a speculative play in the market? Of course not.

I'm not knocking trading. I do it periodically myself. Once I lose a couple of bets, I stop and stay away for a while. As long as you are doing this with only a very small portion of your portfolio, I'd say 5% or less, have a good time, but don't go betting the farm in this manner. That's just asking for trouble.

[tripods68]

When it comes down it all, we are all market "speculators".

The differences between an "Investor" and a "Day-Trader" is the type of informations each uses (eg, charts or balance sheet) to form an "educated guess" or research "forecast". For example, a day trader uses technical analysis charts to predict the stock price behavior to enter/exit market at a profit. Shortsighted it is, day-trader do not care about company's fundamentals or what particularly it in the business for or whose running the company. On the other hand, an Investor study company's balance sheets and cash flow analysis to determine the fundamentals and the profitability of the company. Investors typically are considered long term.

My point is, unless you predict where the DOW, NASDAQ, IBM, or the S&P Index going to close the next day, we are all market speculators or educated gamblers if it makes you feel good.

[Broken Arrow]

Hehe, yes, a speculator is a good term, because traders are constantly scouring for that next good, profitable trade....

To be fair, technicals, even at this point, have their uses, and day traders may even look at fundamentals as well, but only when they're creating their watch list. Plus, when you move as fast as a dozen trades per day, often times, the only thing you've got IS technicals.

But as I have said elsewhere, that's also why I can't day trade, because I can't imagine how anyone can operate like that. I'm sure there are those that make tons of money at it, but I don't have the aptitude for it. Personally, I use whatever will work for me, and that's a mixture of technicals and fundamentals.

They're all just tools in the toolbox to me.

[KB24]

If you sign up with optionsxpress, they have really good guides for learning options. I think they might even be offering a free book if you sign up with them.

[Broken Arrow]

I knew someone that had been a member of OptionsXpress before, and was kind enough to loan me one of their books. They're actually not a bad outfit and the book was pretty good for what it is.

The biggest downside of OptionsXpress is the price. To me, they're quite steep, but others, particularly options traders, will likely disagree. What they would say is that it requires a lot more capital to get into it properly, as well as a lot more training in technicals.

Another potential downer is that OptionsXpress trains you exclusively on their TradeStation software. From another member that is current on TradeStation and demonstrated the software to us, it does look pretty powerful. However, it's a proprietary software with a steep learning curve. Again, all that goes into the reason why OptionsXpress is so pricey.

For people who are just starting out, it's probably best to start with a 3rd party book that explains the basics of options trading, and then try their hand at a discount brokerage first. The likes of OptionsXpress are typically for very serious traders or even professionals that are working with a sizeable amount (let's say, 30k minimum) and are good enough to off-set the hefty trade fees and subscription costs.

If you're looking for an elephant gun, go OptionsXpress.

[tripods68]

Hehe, yes, a speculator is a good term, because traders are constantly scouring for that next good, profitable trade....

To be fair, technicals, even at this point, have their uses, and day traders may even look at fundamentals as well, but only when they're creating their watch list. Plus, when you move as fast as a dozen trades per day, often times, the only thing you've got IS technicals.

But as I have said elsewhere, that's also why I can't day trade, because I can't imagine how anyone can operate like that. I'm sure there are those that make tons of money at it, but I don't have the aptitude for it. Personally, I use whatever will work for me, and that's a mixture of technicals and fundamentals.

They're all just tools in the toolbox to me.

When I worked for Franklin Templeton in the late 1990s, i was intrigued by becoming a research analyst. That's all they do. They all make a peach to the fund manager once a week about a sector/company they are covering to add in the portfolio fund. They study the health of the company and asking CFOs. These are aggressive analysts whom wants to aspire to become a fund manager. That's how many starts in the bottom and eventually running your own portfolio manager, once you've proven with excellent track record. But of course, I just like the long hours and weekend they work. I became a pension analyst instead work 7 AM and leave home 3:30 of every day with no pressure around...LOL!

My point it is very hard to research every company in your watchlist. You do what you can.

[KB24]

I took a great option trading course with investools. they are really expensive, 22k for the full program which includes advanced option trading techniques, but if you are serious about learning and applying the knowledge, it is definitely worth it. I took the class about 5 years ago. It was a week long program and then they had all these coaching meetings and practice trading sessions.

If you're not looking to drop that much cash, cboe.com has some free learning materials on their site. I think they even mail you a free training CD to teach you the basics. It's a good place to start.