Getting started in trading options

Question

Hi Anna, Just seen your website yesterday and was wondering if you have a site for options trading. I am a complete newbie on trading but received an email in Jan, this  appears to say you can make serious money through options trading. Can option trading be carried in the same way in the UK as in the US? Any help/ advise is greatly appreciated.

Answer

Hi – Thanks for your email & apologies for the delay in responding – it appears to have been filed in error. With regard to your enquiry about options trading – it is possible in the UK – but the market is so much bigger in the US. David (my husband) & I have experience of options – in particular covered calls and spread strategies at a time when we were heavily invested in US stocks. One of the best little books you can buy to explain options is published by Lightbulb Press and is called An Investor’s Guide to Trading Options by Virginia B Morris & Bess Newman. However, as complete newbie I would urge you to consider the considerable risks which are a feature of options trading, for two reasons:

  • Most people use options as a cheap way of controlling a large block of stocks. In other words, a small outlay for a potentially large gain. The main flaw in this strategy is that as a buyer time is a wasting asset, and second it is generally accepted that over 80% of call options expire worthless.
  • As an options seller time is on your side, and you collect a premium. However, the risks are unlimited unless you protect the option by covering the position by holding the underlying asset. Trading naked, as it is called, is very high risk. This can be protected with a put. There are many options strategies, and would therefore urge you to learn as much as possible about this market.

The above book is a great starting point. Hope the above helps. Kind regards.

 

About Anna 1030 Articles
Hi – my name is Anna Coulling and I am a full time currency, commodities and equities trader. I have been involved in both trading and investing for over fifteen years and have traded many different financial instruments, from options and futures to stocks and commodities. I write and publish articles ( mostly for free ) for UK and international publications on a wide variety of financial issues, and in particular I enjoy helping others learn how to invest and trade.

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