Resources
As much as I and the editors of this book would love for it to be comprehensive, there’s only so much we can do. Options trading is complex, and you might find you need more information. These are some great resources for you.
Books
There are so many great books and other publications written about the financial industry and used by people in it that this is only a sampling. It includes books that I used in writing this book, that I especially liked, or that will give you more information about critical topics.
Barron’s Dictionary of Finance and Investment Terms
by John Downes and Jordan Elliott Goodman
This dictionary is not published by the same company as Barron’s weekly newspaper, but it is an indispensible resource for investors. The dictionary is a useful guide to technical terms and jargon that you will come across while trading, and it gives precise technical definitions of terms that are often thrown around with the assumption that the reader already knows what they mean.
The Black Swan: The Impact of the Highly Improbable, Second Edition
by Nassim Nicholas Taleb
This is a bestseller with a lot of insight into volatility. He discusses the effects of what he calls “Black Swan” events, unpredictable events with low probability and profound effects on financial markets. Examples include 9/11, earthquakes, and asteroid impacts. Taleb asserts that change occurs in spurts, not along a gradual continuum, and demonstrates this notion with lively writing and entertaining examples. His basic thesis is that the world is dominated by essentially random unpredictable events, and our efforts to predict the future based on the past are a fool’s errand.
Chicago Board of Trade Handbook of Futures and Options
Chicago Board of Trade
This is an old but useful guide to futures and options trading written by the folks who have been doing it since 1848. It describes the history of derivative products and explores some of the unprecedented changes that electronic trading has brought to the marketplace. Helpful to beginners and more seasoned professionals alike, the guide gives a good overview of the basics and also discusses more complex and sophisticated strategies. Look for it at your library.
Calculus Made Easy
by Silvanus Thompson
Even though this book was published so long ago, it remains superior to every book on calculus published after it. The key options variables—delta, gamma, vega, theta—all come from calculus. You don’t need to know calculus to trade options, but this book will give you a little more insight into the meaning of price movements. At a minimum, it will explain what you never quite grasped back in high school math class.
Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
by William Poundstone
This book tells the story of Bell Lab scientists and a gaming theory professor at MIT who developed numerical methods such as counting cards and strategies for gambling on roulette to game the gaming industry and then turned their sights on Wall Street to amass personal fortunes. The Kelly criterion system of money management is one result of their efforts. The book is not a rigorous treatment of the theoretical merits of the criterion, but more an enthusiastic recounting of true stories about a colorful cast of characters who applied the formula to an assortment of enterprises with varying degrees of success.
The Handbook of Portfolio Mathematics: Formulas for Optimal Allocation and Leverage
by Ralph Vince
Vince is a programmer who worked for some hedge funds and then put together this mathematical treatment of trading techniques. He’s written a few different books; this one distills the essential elements of his earlier books on application of mathematics to portfolio management and risk management. It also presents various trading models and means to create other models. Vince especially emphasizes money management. This is a great guide for those looking to develop their own trading systems.
Investments, Tenth Edition
by Zvi Bodie, Alex Kane, and Alan J. Marcus
A solid standard text, this basic guide to investment fundamentals is used in many college MBA classes. The book focuses more deeply on options, futures, and other complex security derivatives than its peers. It is probably more theoretical and detailed than any options trader needs, but I used it as a reference in writing this book.
IRS Publication 550, “Investment Income and Expenses”
All you need to know about options and income taxes, in excruciating detail, updated for each tax year. This is complicated, and it may not answer your question, but it will provide the guidance you and your tax adviser need to keep you on the level with the feds.
Options as a Strategic Investment, Sixth Edition
by Lawrence McMillan
This is a good, thorough, theoretical overview of options trading. It’s a good next step after reading this book, as it targets experienced and advanced options traders. The book includes many proven techniques and detailed guidance for options trading in a variety of market environments. The latest edition has an expanded section on market volatility.
Options: Essential Concepts and Trading Strategies, Third Edition
The Options Institute
This authoritative reference manual is produced by the Options Institute, the educational branch of the Chicago Board Options Exchange, and gives a comprehensive description of the options marketplace. This manual covers the territory from basic to advanced trading strategies, discusses pricing and risk, and includes the different perspectives of individual investors and institutional investors.
The Options Playbook
by Brian Overby and TradeKing
The Options Playbook is a lovely, spiral-bound book that sets out the basics of options trading. In particular, it has clear payoff diagrams for just about every strategy you could ever use, along with a clear description of how it works. It’s a practical guide to putting together a position, and especially good for those who will be trading options frequently.
Taxes and Investing: A Guide for the Individual Investor
The Options Industry Council
This guide was prepared by the staff of Ernst and Young, now known as EY, and it is available on the Chicago Board Options Exchange website. It is a detailed guide to the tax liabilities and preferences generated by different investment transactions, especially those involving options.
The Trading Game: Playing by the Numbers to Make Millions
by Ryan Jones
Money management is a key aspect of successful trading, and this book sets out the details of money management and risk management to help traders improve. It’s a great guide for those who want to learn more about the topic and reduce some of their trading risks.
The W. D. Gann Master Commodity Course: Original Commodity Market Trading Course
by W. D. Gann
The commodity trading course presents W. D. Gann’s methods of commodity trading using a variety of geometric, charting, and trend analysis techniques, which he developed from the 1920s through the 1950s. Gann was a Freemason, and his many forecasting methods include astronomical and astrological systems which remain controversial, though potentially useful. Some traders swear by them; many other use his money management system and ignore the rest.
Zero Sum Game: The Risk of the World’s Largest Derivatives Exchange
by Erika S. Olson
Olson worked at the Chicago Board of Trade during its merger with the Chicago Mercantile Exchange. This was a major transaction in the world of derivatives, and it included a bidding war and lots of political intrigue. If you’re interested in the industry and its history, this is a fun read about a pivotal event.
Movies and Television
This is a small section, yes, but it’s not empty! Here’s the cable channel and the movie that illuminate the world of trading.
CNBC
CNBC.com
CNBC is a cable and online news network that is a long staple of traders. Some of the programming is sensational, but other aspects of it are really useful. And, a lot of traders like having up-to-the-minute financial news reporting on in the background while they work.
Trading Places (1983)
This movie, starring Dan Aykroyd and Eddie Murphy, has one of the best depictions of open outcry trading anywhere. This is a comedy about two rich brothers who own a commodity trading firm and mess with the lives of Aykroyd’s and Murphy’s characters as part of a bet. The aggrieved men get their revenge by manipulating the market for frozen orange juice contracts. This is a lot of fun, and a little bit educational. Even though open outcry is mostly obsolete, it still takes place, and it still influences the trading culture.
Newspapers and Other Publications
The news industry and the financial industry are close, because traders need good news. (Several major market indexes, such as the Dow Jones Industrial Average, were invented by publishing companies to sell newspapers.) Here are a few to check out.
Barron’s
barrons.com
Barron’s is a financial newspaper focused almost exclusively on financial markets. The paper is published weekly, but Barron’s also has a website with more current information. The paper includes weekly discussions of the previous week’s events and a roundtable discussion surveying the opinions and predictions of various financial gurus, along with book reviews, opinion pieces, and profiles of financial instruments and finance professionals. Its annual review of online brokers is a must-read if you’re shopping for a new broker.
Bloomberg
bloomberg.com
Bloomberg’s website is full of detailed news about business and finance. It’s a great source for breaking financial news. The company sells high-end terminals to traders, and it also has a huge news service to go with it.
The Economist
economist.com
The Economist is a London-based weekly newsmagazine that provides some of the best reporting on financial issues and emerging markets anywhere. It covers the news from an economic perspective, and it offers regular analysis and opinion on economic indicators. It is owned in part by the Rothschild family of banking fame. The magazine (and website) covers world events and politics in addition to economic news, but nevertheless remains a useful source of economic information and metrics.
Financial Times
ft.com
Financial Times is a London-based daily newspaper printed on pink-ish paper. It also operates a website that focuses on economic and financial news. It is a competitor to The Wall Street Journal and largely serves the same niche, though with a more Eurocentric slant.
Investor’s Business Daily
investors.com
Investor’s Business Daily is a financial newspaper that has a special focus on stock trading. It was founded by William O’Neil, who developed a system of technical analysis for stock trading. This will be of most interest to traders who work in single-stock options.
Reuters
reuters.com
Reuters operates a business newswire, and many brokerage firm trading platforms collect stories from it. It also has a good website with global business news. This is a place for almost real-time facts and press releases to keep you up to date on what’s happening as it happens.
Traders Magazine
tradersmagazine.com
This magazine and website cover news specific to traders. It’s less about strategies and more about the structure of the market. Given how fast the markets are changing, that makes it really useful for serious traders.
The Wall Street Journal
wsj.com
I almost wasn’t sure if I needed to mention the Journal here. It’s ubiquitous in the financial world because it’s good; in addition to its U.S. business coverage, it has strong English-language coverage of Asian markets.
Websites
Benzinga
benzinga.com
Benzinga is a website aimed at traders. It includes podcasts, internet radio, news stories, and columns covering market issues and trading ideas. It’s a good way to see what other traders are thinking, which can help guide your trading and give you insights beyond what you get from your own trade diary.
CBOE Options Institute
cboe.com/learncenter
The Chicago Board Options Exchange has an extensive selection of information about options trading for people at just about every level with just about every need. Most of the programs are free, too. The website has articles, webinars, news updates, and other information to help you learn and refine trading.
Investopedia
investopedia.com
Investopedia is a broad, web-based resource focused on all aspects of investing. The website includes tutorials, a financial dictionary, test prep services, trading simulation software, quotes, and articles. It is a tremendous resource whether you know what you are looking for or are just interested in poking around.
Khan Academy
khanacademy.org
The Khan Academy is a nonprofit educational 501(c)(3) organization with the mission to provide educational materials about math and science on a web platform for free. The Finance and Capital Markets section of the Khan Academy website has an entire section with some 40+ short college lecture-style YouTube videos about options, futures, and other derivatives. Like a college course, the lectures start with the basics and become increasingly more complex and sophisticated.
The Options Insider
theoptionsinsider.com
This website offers news, analysis, and podcasts on everything related to options trading. It has a lot of really good and current news and information to help you adapt your trading to the current state of the markets.
Options Industry Council
optionseducation.org
Funded by all of the options exchanges, the Option Industry Council’s education programs are extensive, and they are free. The goal is to train people to use options successfully so they keep trading. It has a lot of good, free online classes and information that will fill in the gaps for all but the most sophisticated traders.
The Root of All
therootofall.com
This is my own blog. The love of money may be the root of all evil, but money has a huge role in our lives. It covers all sorts of money-related topics, including some news and analysis on options trading.
SeekingAlpha
seekingalpha.com
This website for traders and investors features contributions from industry professionals about trade ideas and current market news. The bias is toward the stock market, but those working in other markets will find usable information, too.
TradeXchange
thetradeXchange.com
TradeXchange is mostly a paid website for serious options traders, although there are some free blog posts and videos. The paid website includes a forum for traders to discuss the markets, free of a lot of the trolling and touting that takes place on a lot of free trading forums.