Trading Academy

A Professional Approach to Trading Options

by Nick Katiforis

Most people would generally agree that options are best left to the ‘experts’ or those with a good mathematical brain (and thick black-rimmed glasses) to trade.

There are different strike prices, expiry dates, volatilities, Greek symbols, time decay and other factors to contend with, not to mention the different strategies with bizarre names such as strangles, straddles, butterflies and bull call spreads just to name a few.

Isn’t it easier to just trade stocks or futures?

Why would you go to the time and effort of trading options, when buying or selling a futures contract or buying stocks seems so much simpler and less complicated to do?

In short, the most successful people do not always look for the easiest path to take. They are the ones that have an ‘edge’, then use discipline to follow through with a plan of action.

Options, unlike any other trading vehicle, can offer you this ‘edge’, while still allowing the flexibility to cover almost any investment strategy and risk profile that you may have.

People who trade options for a living make it their business to understand and apply the principles outlined here. Why? Because they know that by doing so they have an ‘edge’ over the people that don’t. Without a trading edge they are like the typical casino gambler; ultimately they are destined to lose their money. With a trading edge they are more like the casino itself.

Professional Option Traders

Why are options such a popular vehicle for professional traders? They speak of options in such a loving and affectionate way, that you would think they were talking about their significant partner (or possibly their golf clubs).

You probably don’t have the opportunity to speak to people who make their living from trading the markets, let alone someone who trades options for a living. It sounds like such an exotic occupation that it is easy to imagine these people as weird mathematical geniuses who could give Kasparov a run for his money in a chess tournament.

To my surprise, I found that during my time as a professional floor trader at the Sydney Futures Exchange, although many of the options traders I met were intelligent people, they were far from being in the genius category.

However, what I did find was that all of them without exception, knew and applied certain principles unique to options. These principles gave them an “edge” in successfully trading the market, which enabled them to earn a living through trading options.

The purpose of the information here is to break down and simplify the core option trading principles that the professionals use, so that you also can learn to apply them.

But I am Not a Professional Options Trader

You don’t have to be! The principles that give professional option traders their edge are available to you as well. They are universal in nature. With practice you can learn to apply them yourself to help put the odds more squarely in your favour.

You may not have all the advantages that a professional options trader has, but by using the same principles that they do, and being more selective in your trading, you too can enjoy a trading edge.