I have had many traders asking me for my top option book picks over the years so I thought it would be a great blog topic.
In my journey through reading hundreds of trading books these are my favorite 10 that benefited me the most in my option education over the years. I picked books that will not insult your intelligence by being too basic nor melt your brain with over complexity. I think these option books are just right for most option traders. I have many more that bored me to tears or that you could tell the author was a writer not an actual option trader by over looking the realities of the risk and stress in option trading. Hopefully this is a great short cut for those interested in getting started in options.
After looking through my home library these are my top 10 picks.
Options 101 I wrote this book for the stock trader trying to transition over from trading stocks to options as smoothly as possible. This is a great place to start learning option pricing structures and option strategies.
Get Rich With Options While the publisher chose an aggressive title for this book it does lay out four good option trading strategies. Selling puts on stocks that you want to own at lower prices anyway, option credit spreads, selling covered calls to create income on long term holdings, and my personal favorite: deep-in-the-money call options. Very few ever discuss the power of buying deep-in-the-money call options where you control the full upside of a stock for less risk and with far less capital.
The Bible of Option Strategies This is the encyclopedia of option strategies. You get a description of each strategy along with specific metrics for each one and the steps in creating it, the rationale to trade it, if it is net debit or credit, the effect of time decay on the strategy, appropriate time period, selecting the right stocks and options, risk profile, the Greeks, the advantages and disadvantages and how to best exit the trade. This book is meant as a reference book but I read it through cover to cover.
Trading Stock Options Complete reverse from the above book, this is like the Cliff’s Notes of complex trading strategies. The author shows how he used real option trades for big profits and also had trades that were smaller losses. He simplifies many strategies to make them understandable especially playing long strangles and straddles through earnings by betting on actual post earnings volatility being greater than the volatility that is priced in to the options through Vega.
Trading On Corporate Earnings This is a great book on how to best play holding through earnings announcements by using options instead of stock.
The Option Traders Hedge Fund This book shows the reader how an actual hedge fund operates for profit using options to generate income much like an insurance company does by selling policies. Great analogy and interesting perspective.
Generate Thousands In Cash on Your Stocks before buying or selling them This book is one of a kind in explaining how to generate income in selling options and also how to continually navigate option plays by adjusting positions by selling new options to offset current holdings. It is a different perspective and an interesting read.
Options Trading: The Hidden Reality This book is like taking the red pill and entering option matrix but you have to be ready to understand it by fully grasping the option Greeks to fully appreciate it. The beauty of this book is how he explains the parallel risk structure of options that most never grasp. One example is that selling a covered call and selling a naked put is virtually the same thing. In both plays you receive a small premium for taking on the entire downside risk in the stock.
Short Spider Straddles: A Winning Combination This book is a great example of a simple robust trading strategy that wins in the long run through selling premium on both the long and short sides of a trade and letting the efficiency of implied volatility work in the option sellers favor. This book shows the historical long term double digit returns. But, alas this is no Holy Grail it is a profitable system when actual volatility is not more than two times implied volatility and while the SPY ETF has slower move on a percentage basis in most market environments during higher market volatility this system will lose and with no hedges in place the losses could be substantial like Black Monday 1987, the Fall of 2008, and the day of the 2010 flash crash.
$TOCK OPTION$ I actually wrote the foreward to this book. It is a great introduction on how to sell option premium for profit by using short strangles and managing the position if it does move against you. It is a great primer for those that want to be a high probability winning option seller.
I also created an Options 101 eCourse for those that prefer to learn in a more audible and visual context.
