The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

WRITING OPTIONS

In options, there is a sharp dividing line between two groups of people. On the one side are the beginners and gamblers who lose money year after miserable year. On the other side are the pros, making a steady living in the options market.

Do you know where that line is drawn?

The great dividing line in options is between the buyers and the writers. On the one side of the line are the winners who write options. On the other are the losers who buy them.

Options: Recommended Literature

Every options trader should own Lawrence McMillan’s Options as a Strategic Investment. You will probably use it as a handbook rather than read it from cover to cover. Many professionals read Sheldon Natenberg’s Option Volatility and Pricing Strategies. Harvey Friedentag’s Options: Investing Without Fear has a nice angle on covered writing.

I have never in my life met a person who built equity buying options.

Almost every option buyer can tell you about a successful trade or even a few trades in the options market. But those are merely flashes in the pan—totally different from having a long-term positive equity curve. Those occasional wins are like payouts from a slot machine—enough to keep losers motivated to throw more money away.

Options tend to attract poor beginners because the game is cheaper than stocks. Many buy options as a substitute for stocks, and I always tell such folks that they are chasing a deadly illusion. The key difference between options and stocks is ...