Best book to learn about stock options

Top 5 Books to Become an Option Trader.

Many consider options trading an unfamiliar and daunting area of investing. Fortunately, there are plenty of excellent books written on the subject to help traders understand the options markets and learn to trade them profitably. Here are five of the best available books that provide a clear education on options trading, as well as instruction on using various option trading strategies.

"Option as a Strategic Investment," by Lawrence McMillan.

Considered by many to be the Bible of options trading, Lawrence McMillan’s classic from 1980, “Options as a Strategic Investment,” provides traders with practical option trading strategies designed to minimize risk and maximize the profit potential for an investment portfolio. At over 1,000 pages, the book is an exhaustive reference on trading options. It contains information on the concept of using options investments, specific option strategies and market conditions in which they tend to work best, obtaining the best possible risk/reward position for an investment portfolio, using options as a hedge, and how tax laws apply to option trading profits or losses. The book also offers detailed advice on trading index options, trading options on futures, and measuring and utilizing market volatility. Further, McMillan provides extensive examples and illustrations of numerous option trading strategies.

"Option Volatility and Pricing," by Sheldon Natenberg.

Understanding market volatility and its relation to option pricing is key to helping traders conceptualize option pricing and evaluate fair value in the options market. Sheldon Natenberg’s “Option Volatility and Pricing” is considered one of the best volumes on this critical aspect of option trading. Natenberg provides a clear, solid explanation of theoretical option pricing models, followed by instruction in specific trading strategies that have historically been the most profitable in various market conditions. He provides a wealth of material on risk management and evaluating trading opportunities in options, and even includes material on creating your own option trading strategies. Natenberg presents his material in a clear, easy-to-follow manner and helps readers to understand the key concepts involved in trading options, such as the relation of options to their underlying asset, volatility, and option pricing and the time value of options.

"Fundamentals of Futures and Options Markets," by John Hull.

Options trading is particularly popular with traders who regularly trade the commodity futures markets. John Hull's "Fundamentals of Futures and Options Markets," which is considered a companion text to his “Options, Futures and Other Derivatives,” offers a clear understanding of the futures and options trading markets. Hull is a widely recognized authority on derivatives, futures and risk management who has served as a consultant to many of the best-known investment banking firms. Considered an excellent reference work for both beginners and seasoned option traders, Hull’s book includes information on swaps and other derivative instruments, trading interest rate futures and estimating the time value of options, all presented in an easy-to-follow manner.

"Trading Options Greeks: How Time, Volatility, and Other Pricing Factors Drive Profits," by Dan Passarelli.

A large part of mastering options trading lies in understanding what are referred to as the “Greeks." The “Greeks” are the Greek terms delta, theta, vega and rho, which refer to, respectively, option price movement in relation to underlying asset price movement, time value of options, volatility-related option price changes, and option price movements caused by changes in the risk-free interest rate, commonly equated with the yield on U. S. Treasury bills. Passarelli's book explains the impact that each of these factors has on option values and presents various option trading strategies that seek to profit from changes in any or all of the “Greeks.” Passarelli aims to provide traders with the necessary knowledge and tools to more accurately evaluate option pricing, as well as better identify a variety of profit opportunities available through the skillful use of options trades.

"The Option Trader's Hedge Fund," by Mark Sebastian and Dennis Chen.

“The Option Trader’s Hedge Fund,” penned by Mark Sebastian and Dennis Chen in 2012, offers traders an option trading business model to earn consistent profitable returns from options trading. In the book, option trading coach Sebastian and hedge fund manager Chen provide a step-by-step plan for setting up a short option investment portfolio, designed to generate steady income from selling, or writing, options. Sebastian and Chen present the idea of essentially setting up your own individual hedge fund as an options trader. The book’s numerous examples and illustrations make it easy for even a novice options trader to understand the option trading strategies presented. The authors offer especially helpful advice on the key options trading elements of risk management and volatility.

Options Trading Books.

The Bible of Options Strategies - Guy Cohen is the master when it comes to taming the complexities of options. From buying calls and puts to iron butterflies and condors, Guy explains these strategies in a clear and concise manner that options traders of any level can understand. His chapter on options and taxes is especially welcomed (and needed). The Bible of Options Trading Strategies is a straightforward, easy-to-use reference work that should occupy a space on any options trader's bookshelf.

Options as a Strategic Investment - Reflecting today's market realities and the new innovative options products available, this fourth edition features an in-depth analysis of volatility and volatility trading; updated information on all stock option strategies, reflecting recent market conditions; buy and sell strategies for Long Term Equity Anticipation Securities (LEAPs); detailed guidance for investing in the growing field of structured products; the latest developments in futures and futures options; and the market impact of the most recent changes in the margin rules. Packed with graphs and charts to clarify profit and loss potential, margin requirements, and criteria for selection of a position, this classic remains an indispensable resource for investors determined to master the world of options--and profit.

Trend Following - How did John W. Henry quietly become rich enough to buy the Boston Red Sox? How have traders like Keith Campbell, Bill Dunn, Jerry Parker, and Salem Abraham consistently generated immense wealth in bull and bear markets? The key is trend following -- the only strategy proven to consistently make money. Now, one of the field's leading experts pulls back the veil on trend following, showing how it works and how you can take advantage of it. Michael Covel reveals the "underground" network of little-known traders and hedge fund managers who've been using trend following for decades. He introduces its fundamental concepts and techniques, showing why market prices contain all the information investors need, and how to understand price movements well enough to profit from them. Using 100 pages of easy-to-understand charts from top trend followers, Covel proves the strategy works -- and shows why only a technical system based on following price trends can win over the long term. Covel presents more than a decade's worth of data: information you'd otherwise pay a fortune to see presented this clearly. He also shows even more backtested trend following results, so you can gain even greater confidence in the method. Along the way, Covel thoroughly debunks misinformation and failed advice from pros who ought to know better. This timely book capitalizes on today's intense volatility and uncertainty to give investors what they're desperately searching for: a strategy that really works.

Technical Analysis of the Financial Markets - This outstanding reference has already taught thousands of traders the concepts of technical analysis and their application in the futures and stock markets. Covering the latest developments in computer technology, technical tools, and indicators, the second edition features new material on candlestick charting, intermarket relationships, stocks and stock rotation, plus state-of-the-art examples and figures. From how to read charts to understanding indicators and the crucial role technical analysis plays in investing, readers gain a thorough and accessible overview of the field of technical analysis, with a special emphasis on futures markets. Revised and expanded for the demands of today's financial world, this book is essential reading for anyone interested in tracking and analyzing market behavior.

Options Made Easy - Simply and clearly, the author reveals secrets of options trading that were formerly limited to elite professionals and exposes the dangerous myths that keep investors from profiting. As you set out on your options journey, you'll learn interactively through real-life examples, anecdotes, case studies, and pictures. Guy Cohen is your friendly expert guide, helping you pick the right stocks, learn the right strategies, create the trading plans that work, and master the psychology of the winning trader. Master all the essentials and put them to work Options demystified so that you can get past the fear and start profiting! Learn the safest ways to trade options Identify high-probability trades that lead to consistent profits Design a winning Trading Plan and stick to it Understand your risk profile and discover exactly when to enter and exit your trades Choose the right stocks for maximum profit Screen for your best opportunities stocks that are moving or are about to move Discover the optimum strategies for you Match your trading strategies to your personal investment goals No bull! The realities and myths of the markets What you must know about fundamental and technical analysis The easy, plain-English guide to making consistent profits with options! Teaches all the essentials with real-life examples and crystal-clear explanations. No complicated math or confusing jargon: Learn visually with easy-to-understand pictures! Identify high-probability trades, and design a Trading Plan that works. Master practical, easy strategies for succeeding in any environment even bear markets. Updated for today's markets with even more dynamic graphics, intuitive explanations, and valuable information! For every investor interested in trading options. When you read this book, you'll be amazed how quickly you understand options and how quickly you can start profiting from them!

Option Volatility & Pricing - One of the most widely read books among active option traders around the world, Option Volatility & Pricing has been completely updated to reflect the most current developments and trends in option products and trading strategies.

A Beginner's Guide to Short-Term Trading - "A Beginner's Guide to Short-term Trading" is written to those of you who want to profit by grabbing the "sweet spots" out of a stock's uptrend or downtrend. The book explains two styles of trading: swing trading and position trading. When you place a swing trade, you buy a stock with the intent of taking gains in 2 - 5 days. When you enter a position trade, you typically buy a stock breaking out of a base into an uptrend. You hold that position as long as the stock rises in that uptrend, approximately 3 - 6 weeks. If you have a have full-time job, yet want to participate in the stock market, short-term trading may appeal to you. And, if you're a traditional buy-and-hold investor, the knowledge you find in this book will help you keep your profits, instead of gaining them . . . and then giving them back. I wrote "A Beginner's Guide to Short-Term Trading" in the same lighthearted, reader-friendly style as my previous book, "A Beginner's Guide to Day Trading Online." Although the material is comprehensive and substantial, I firmly believe that humor, woven into a serious subject like the stock market, promotes the learning process. I also continued the "Center Points," as I've received a lot of positive feedback from people who enjoyed them in my last book. "A Beginner's Guide to Short-Term Trading," is designed to teach you skills and strategies needed to enter the stock market on a relatively short-term basis, safely and successfully. Please educate yourself thoroughly before you jump into the market, just as you would do with any worthwhile endeavor.

Futures & Options For Dummies - The days of buying and holding stocks and mutual funds for years are gone; nowadays, futures and option markets offer some of the best opportunities to make money trading in volatile times. But like all investments, high risk is involved, and in order to become a successful trader you must be prepared to work as a geopolitical analyst, a money manager, and an expert in all types of commodity markets. Futures & Options For Dummies will show you how trading is done and how to survive and succeed in these ever-changing markets. Filled with nuts-and-bolts advice, you'll soon discover how to manage the risks involved and reap the rewards of futures and options trading. This straightforward guide gives you the tools you need to understand: Ins and outs of trading futures and options How to analyze the markets and develop strategies Interest-rate futures and speculating with currencies How to stock up on indexes The direction of commodity futures Organizing your financial data and calculating your worth Developing strategies now to avoid pain later The execution of successful trades Trading takes an iron-cast stomach and nerves of steel to perform, and this book features ways to keep yourself sane and secure. It also lists resourceful Web sites, commodity exchanges, books, newsletters, and magazines to assist in your trading endeavors. From technical analysis to finding a broker, Futures & Options For Dummies has all the information you need to capitalize on these markets!

10 Books Every Investor Should Read.

When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. But if you're looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment. (To find more recommended books, see Investing Books It Pays To Read .)

"The Intelligent Investor" (1949) by Benjamin Graham.

Benjamin Graham is undisputedly the father of value investing. His ideas about security analysis laid the foundation for a generation of investors, including his most famous student, Warren Buffett. Published in 1949, "The Intelligent Investor" is much more readable than Graham's 1934 work entitled "Security Analysis", which is probably the most quoted, but least read, investing book. "The Intelligent Investor" won't tell you how to pick stocks, but it does teach sound, time-tested principles that every investor can use. Plus, it's worth a read based solely on Warren Buffett's testimonial: "By far the best book on investing ever written." (For an interesting read, check out 3 Difference Between Benjamin Graham and Warren Buffett .)

"Common Stocks And Uncommon Profits" (1958) by Philip Fisher.

Another pioneer in the world of financial analysis, Philip Fisher has had a major influence on modern investment theory. The basic idea of analyzing a stock based on growth potential is largely attributed to Fisher. "Common Stocks And Uncommon Profits" teaches investors to analyze the quality of a business and its ability to produce profits. First published in the 1950s, Fisher's lessons are just as applicable half a century later.

"Stocks For The Long Run" (1994) by Jeremy Siegel.

A professor at the Wharton School of Business, Jeremy Siegel makes the case for - you guessed it - investing in stocks over the long run. He draws on extensive research over the past two centuries to argue not only that equities surpass all other financial assets when it comes to returns, but also that stock returns are safer and more predictable in the face of the effects of inflation. (To learn more, check out Ten Tips For The Successful Long-Term Investor .)

"Learn To Earn" (1995), "One Up On Wall Street" (1989) or "Beating The Street" (1994) by Peter Lynch.

Peter Lynch came into prominence in the 1980s as the manager of the spectacularly performing Fidelity Magellan Fund. "Learn To Earn" is aimed at a younger audience and explains many business basics, "One Up On Wall Street" makes the case for the benefits of self-directed investing, and "Beating The Street" focuses on how Peter Lynch went about choosing winning stocks (or how he missed them) while running the famed Magellan Fund. All three of Lynch's books follow his common sense approach, which insists that individual investors, if they take the time to do their homework, can perform just as well or even better than the experts.

" A Random Walk Down Wall Street " (1973) by Burton G. Malkiel.

This book popularized the ideas that the stock market is efficient and that its prices follow a random walk. Essentially, this means that you can't beat the market. That's right - according to Malkiel, no amount of research, whether fundamental or technical, will help you in the least. Like any good academic, Malkiel backs up his argument with piles of research and statistics. It would be an understatement to say that these ideas are controversial, and many consider them just short of blasphemy. But whether you agree with Malkiel's ideas or not, it is not a bad idea to take a look at how he arrives at his theories. (For further reading, see What Is Market Efficiency? )

"The Essays Of Warren Buffett: Lessons For Corporate America" (2001) by Warren Buffett and Lawrence Cunningham.

Although Buffett seldom comments on his current holdings, he loves to discuss the principles behind his investments. This book is actually a collection of letters that Buffett wrote to shareholders over the past few decades. It's the definitive work summarizing the techniques of the world's greatest investor. Another great Buffett book is "The Warren Buffett Way" by Robert Hagstrom. (For further reading, see Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style? )

"How To Make Money In Stocks" (2009, 4th ed.) by William J. O'Neil.

Bill O'Neil is the founder of Investor's Business Daily , a national business of financial daily newspapers, and the creator of the CANSLIM system. If you are interested in stock picking, this is a great place to start. Many other books are big on generalities with little substance, but "How To Make Money In Stocks" doesn't make the same mistake. Reading this book will provide you with a tangible system that you can implement right away in your research. (For more about CANSLIM, see Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals .)

"Rich Dad Poor Dad" (1997) by Robert T. Kiyosaki.

This book is all about the lessons the rich teach their kids about money, which, according to the author, poor and middle-class parents neglect. Robert Kiyosaki's message is simple, but it holds an important financial lesson that may motivate you to start investing: the poor make money by working for it, while the rich make money by having their assets work for them. We can't think of a better financial book to buy for your kids.

"Common Sense On Mutual Funds" (1999) by John Bogle.

John Bogle, founder of the Vanguard Group, is a driving force behind the case for index funds and against actively-managed mutual funds. In this book, he begins with a primer on investment strategy before blasting the mutual fund industry for the exorbitant fees it charges investors. If you own mutual funds, you should read this book. (To learn more, see The Truth Behind Mutual Fund Returns .)

"Irrational Exuberance" (2000) by Robert J. Shiller.

Named after Alan Greenspan's infamous 1996 comment on the absurdity of stock market valuations, Shiller's book, released in Mar 2000, gives a chilling warning of the dotcom bubble's impending burst. The Yale economist dispels the myth that the market is rational and instead explains it in terms of emotion, herd behavior and speculation. In an ironic twist, "Irrational Exuberance" was released almost exactly at the peak of the market. (To learn more on this topic, see Understanding Investor Behavior .)

The more you know, the more you'll be able to incorporate the advice of some of these experts into your own investment strategy.

For an overview of some of the world's greatest investors, check out The Greatest Investors .

Learn Options Trading with these 2 Great Books.

Over the years I have read and reviewed many books on the market covering a variety of topics. When it comes to learning options trading specifically, there are two great books that I always recommend when talking to friends and family.

Yet, among the several dozen options trading articles here on the site, I realized I have never written a blog post on the books I enjoyed so much as a beginner and still reference today.

The Options Playbook, 2nd Edition.

This book is written by Brian Overby, the options guru from online broker TradeKing. What I love about this book is the opening few sections, which break down the basics of options in everyday terms, using loads of images to break through the over complex mumbo-jumbo.

After introducing the basics of buying and selling, greeks, strategy, risk, etc. the rest of the book is dedicated to breaking down 40 different options strategies . What I enjoy most about this section of the book is the format. Each “play” is visualized with a giant graphic alongside a breakdown of the setup, who should run it (extremely important as experience really does matter), several tips, and finally strategy details.

Fantastic for beginners, I highly recommend this book for those looking for a solid surface level intro to options. The only gripe is that it is only available in a spiral hard cover format, no paperback version or kindle version.

The Rookie’s Guide to Options, 2nd Edition.

The book is written by a long time friend of mine, Mark Wolfinger, who wrote most of the options education articles for StockTradingToGo.

The Rookie’s Guide to Options is longer and more in depth than The Options Playbook. Furthermore, the format is much more text heavy versus the visually friendly Options Playbook. Lastly, the book includes Quizzes at the end of each chapter which serve as a nice recap as you progress.

Mark is a 23 year veteran of the CBOE (Chicago Board of Exchange) and has a very conservative approach to trading options. As such, Mark reflects this in his book, spending extensive time on conservative strategies such as covered calls, collars, and the like.

With options being so complex, Mark’s focus is longevity and capital conservation, not getting rich quick, and that is a critical foundation for any new investor, not too mention veterans.

The Rookie’s Guide to Options 350+ pages will take time to read as it is detailed and in depth, however I highly recommend it to all new investors who want to take options seriously and desire to be successful over the long haul.

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