Options and trading psychology: A complete guide for beginners with strategies to improve your wealth using financial leverage and money management by Warren Dalio

Options and trading psychology: A complete guide for beginners with strategies to improve your wealth using financial leverage and money management by Warren Dalio

Chapter 1. What Is Option Trading?
An option is an agreement that enables you to purchase and sell specific
stock trading amounts at a particular price within a particular trading time
before the date of expiration avails. Options exist in two kinds: call options
and put options.
How to Get Started in Options Trading
You are required to have an idea of what generally is options trade. Take
into consideration the various terminologies used in this field. This may
include terms such as a holder, a writer, a striking place. Etc., it would be
advisable to come up with a spreadsheet with these terminologies and make
an effort to study them in-depth. This will contribute a lot to your
understanding of what Option Trade revolves around. Generally, options
trade can be defined as a contract that allows you to either buy or sell a
stock at a certain strike price for a specified length of time. With this
knowledge, you have already started making your steps towards Option
Trading. You realize that options trading mostly revolves around the call
option as well as the put option and hence the need to ensure that you
understand what they entail in-depth. The options usually play a critical
role; they control the value of the stock. You should also understand that the
options are prone to expire, especially in cases where the contract is over. In
this case, you end up losing your premiums to the developer. 
When carrying on with how to start Options Trading, you will require to
have brought together the necessary tools. This refers to various resources
that will be sufficient enough to take you through the entire process of
Option Trade. Your capital plays a very critical role in ensuring that you are
able to purchase an option that best suits your strategy and be in a position
to amerce as many profits as possible. In the cases where you plan on
involving a broker, you can comfortably cater for their commissions as well
as be in a position to hire their best services. 
The other step that you must familiarize yourself with is the knowledge and
understanding that options trade involves very high risks. The risks here are
usually in two dimensions, the amount of money you lose as compared to
the profits you would have realized, the other dimension is the probability
of acquiring profits as compared to the probability of getting a loss. The
high risks can occur, especially when the options have been purchased
speculatively. If at one point you are not careful you might end up losing all
your profits. You can easily acquire high profits if you have an in-depth
understanding of the stock’s price movement. Taking advantage of the
options in such scenarios can go away up into protecting your investments
beyond a reasonable doubt. In this case, you only stand to lose the
premiums and a very small percentage of the investment, as you had
depicted in the contract. 
Getting to the most critical parts now, you will need to open a brokerage
account either online or traditionally through a broker. Here there are
various factors to consider before settling with the most reliable brokerage
company. Ensure that you are aware of their costs and incentives, some of
the brokerage companies may be offering discounts to their customers as a
way of attracting them, and you can take advantage of this and benefit from
the discounts they offer as well. You can also check on the conveniences
and services that various brokerage companies offer before settling on
either. These may be services such as money conversions or providing
adequate information on the stock ratings. Having enumerated the pros and
cons of each of the brokerage firms, then you can settle on one that best
suits your desire. It is also advisable to ensure that your brokerage company
has an acceptable form of money transfer, especially for online accounts.
Some of the firms will provide you with Electronic Money Transfer
systems hence enhancing convenience.  
You can acquire the necessary approval application form your brokerage
company before you can start buying options. You realize that most of the
brokerage firms set limits for their customers; they usually do this so that
they can prevent you from getting inappropriate risks that could have been
avoided. They also do this as they too have their own interests that they are
so much willing to protect, especially on matters to do with the legalities. 
Familiarize yourself with the various technical analysis of options; you
realize that options are usually short term. Failure to understand the
resistance and support levels, the Fibonacci retracement, the importance of
volume, and some basic knowledge of the moving averages will make it
quite hard to go through the process with ease.   
When you get into the actual trading, it would be inappropriate to start
trading immediately. Instead, try to run some demo accounts and familiarize

Options and trading psychology: A complete guide for beginners with strategies to improve your wealth using financial leverage and money management by Warren Dalio