I have been a Malkiel fan, and a committed Random Walker for some years, and simple techniques like Dollar Cost Averageing have served me well. However, I've grown interested in some more advanced investment techniques to boost my portfolio, and of these, Options Trading has really caught my attention.
Here are some resources that have helped formulate a basic understanding for me:
- Khan Academy: American Call Options
- A great little video to introduce the concept. Sal's graphical, example oriented approach was an extremely instructive nugget to get me started
- Khan Academy: Call Options as Leverage
- Reinforced the concept that a call option is a "force multiplier" and can yield magnitudes higher percent returns, while simultaneously reducing the required upfront capital.
- Yale Econ 252: Financial Markets - Lecture 23
- With Khan Academy piqueing my interest in the topic, I found a more rigorous lecture on the topic. While Shiller is not exactly the most dynamic instructor (at least this was my impression from this single lecture), the video provides an excellent historical and theoritical foundation on options markets.
- TD Ameritrade's Investor Education
- I have been a TDAmeritrade customer for years, and have found that their online portfolio management tools are simple and intuitive, yet quite powerful in terms of access to instruments.
- They are definitely not the cheapest alternative in terms of trade commissions, but this has not yet been a concern for me given my preference for particular ETFs which TD offers commission free.
- Their Investor Education center is geared primarily toward the use of TD trading platform, but the tutorials were very instructive in learning hw to read options chains and understand how to evaluate key attributes such as the option Strike Price, Expiration date, bid/ask spread etc.
The basics on Options Trading are easy to grasp, but (as with all other aspects of investing) are only just the beginning. I have decided that I am most interested in taking advantage of the leverage advantage that call options offer. In order to apply this concept, I first need to find an equity to formulate a position around.
In the meanwhile, I have been thinking that it would be very useful to have a simple calculator that accepts parameters like the option strike price, expiration date, commission rate etc. and returns back a single value for potential profit or loss. The ones I've found are quite complex and attempt to estimate profits along a continuum with assumptions for volatility, and other "greeks". More on that later perhaps?