I talked to a young man today, and gave him a one hour version of everything I know and have learned during my 24 years of option trading. Here are some of the topics covered:
* The importance of finding your own style. What works for me, may not work for someone else. For novices, keeping a trade journal (that's what this blog is) can be a good way to find what works.
* What I do: I mostly sell puts on ETFs (SPY, TLT, GLD) and to a lesser extent (IWM, EEM, TBT). I tend to be delta positive, theta positive and aim for about 90% probability of winning. If the market is unchanged every day that is a good result because I am theta positive, meaning I benefit from time decay. Overall, this translates into about 80% winners because of stops and the occasional shots at the long or short side.
* What I term shots are lower percentage trades. I tend to favor vertical spreads or calendar spreads to lower the costs and increase the probabilities, and decrease the time decay.
* More: for technical analysis I tend to keep things simple. I mostly use a 1-year candlestick chart, with a 50 day simple moving average and a 200 day SMA, and in the lower box a momentum indicator such as RSI. I tend to look for support levels and look to sell puts at a strike price below support.
* I am a relatively slow moving trader, so I tend to avoid fast markets and the most popular stocks.
Some more links
Option greeks (link1)
More on verticals vs. calendars (link2) (scroll down to the April 09, 2011 entry labeled: Options 201: calendars vs. verticals .
ThinkorSwim (my broker, do your own search) they host a weekly market wrap up every Friday afternoon 4:30 eastern time, and it is open to anyone who registers to listen.
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