Options offer investors the opportunity to diversify their portfolio and generate another stream of income.
Before investing in options, it is important that investors fully understand what options are to minimize the risk involved in options trading. There are numerous books and online resources an investor can use to become familiar with options. From this article, investors will learn about the three best books an investor can read to learn more about options trading.
- Options as a Strategic Investment by Lawrence McMillan: This is the go-to book about options trading. It has over 1,000 pages of material that includes specific option trading strategies and market conditions where they work the best, using options as a hedge, how tax laws apply to option trading profits or loses, and how to obtain the best risk/reward position for an investment portfolio. The book also offers advice on trading index options, options on futures, and measuring and utilizing market volatility. Examples of numerous options trading strategies and scenarios are included. If an investor only wants to read one book about options and still be prepared to trade successfully, then this would be the book to read.
- Option Volatility and Pricing by Sheldon Natenberg: Understanding market volatility and how it affects option pricing is essential in order to be successful when trading options. This book will provide readers the knowledge needed to understand the relationship between volatility and pricing. Material in this book includes risk management and evaluating option trading opportunities, how to create one’s own option trading strategy, and explanations of simple theoretical option pricing models. Everything is presented in a clear and easy-to-follow manner. After reading this, investors will understand the key concepts that relate options to their underlying security, volatility, option pricing, and the time value of options.
- The Option Trader’s Hedge Fund by Dennis Chen and Mark Sebastian: This book offers investors an option trading business model to earn consistent and profitable returns from trading options. Mark Sebastian is an option trading coach and Dennis Chen is a hedge fund manager. Together, they combine their expertise to form this book. In this book, readers will find a step-by-step guide for setting up an short option investment portfolio, which is designed to generate a profit from selling options contracts. The book contains numerous examples and scenarios that make it easy for the reader to understand the options strategies presented. The idea behind this book is that investors will establish their own individual hedge fund as options traders.
These three books each offer useful information that can be used to learn about options trading. The books are presented in a simple and clear manner. Investors can read these books to become better prepared to profit from trading options.