Trading Options for Dummies by Joe Duarte

Trading Options for Dummies by Joe Duarte

Part 1
Getting Started

IN THIS PART …
Appreciate and analyze options while making the market work for
you.
Get introduced to options contracts and values.
Find your way around options markets and get introduced to the
Greeks.
Get familiar with option risks and rewards.

Chapter 1
Options Trading and the
Individual Investor
IN THIS CHAPTER
Getting to appreciate options
Analyzing options with any market in mind
Making the markets work for you
Whatever your level of experience, trading style, general tendency for
holding onto positions, and risk profile, as an individual investor you can
add options on individual stocks, indexes, and exchange traded mutual
funds (ETFs) to your investment war chest. Perhaps the best reason to
add options to your trading or investing strategies is that they allow you
to both manage your risk and grow your assets. And because there are so
many ways to use options, just about anyone can use them — as long as
you take the time to learn the associated risks and rewards and become
familiar with the particular strategies that suit your purposes. This is
achieved by a process of retraining — rewiring — your brain to think in
a slightly different way than your norm. No, rewiring your brain won’t
hurt. But it will help you to see the markets in a different and more
profitable way.
The first step in the rewiring process is to know that there is a difference
between trading and investing, especially in terms of time frames.
Investing is all about using the power of time and the benefits of
compounding to build wealth over long periods. The traditional buy and
hold strategy for stocks is a perfect example, as is the owning of rental
properties for long periods to generate income. This long-term-oriented,
patient mindset works well for stocks and mutual funds but not always
for options because of the time limit in the life of an option, unless you

Trading Options for Dummies by Joe Duarte