The stock market can be very lucrative for buy and hold investors. But what if you wanted to take a more active approach? Enter “The Options Playbook” by Brian Overby. Options are stock market “plays” that you can use for various purposes. You can trade options for offense, defense, protection, and aggression purposes. If you are looking for an exciting stock market career, this book covers over 40 different options plays.
Are options trading something for you? I do not see myself trading options very much. For my channel’s purposes, I will probably do it a few times to understand what it offers. Trading options can be very stressful, and only professionals should handle most of the plays; however, beginners can use a few plays. I do not want to get too deep into the actual process of trading options yet because I already have a whole series mapped out.
I do see the benefit of trading options in some cases. The process can provide you some safe income on top of dividends and capital gains. In cases like this, I may create a comfortable battle rhythm of trading options across some well-known stocks. I recommend this book to anyone who wants a deeper understanding of the total stock market. With that, let’s get into my takeaways.
1) Each options contract is in the amount of 100 shares of stock- magnifying everything in the options market. You can borrow a hundred stocks, but you will be on the hook if your option contract gets called. Be very careful because there is lots of money at stake.
2) If you want a children’s game, play Monopoly- options are complicated. Only serious players need to apply. There are things such as time decay, delta, volatility, in-the-money, out-of-the-money, calls, and puts. I recommend reading the book, watching YouTube, AND attending a course before you get started.
3) You can hedge your bets. In traditional stock market trades, you can perform a stop loss- giving you a way to protect your investment against a negative turn. Options can be a better way to hedge your bet than a stop-loss. Because stocks still trade in after-hours, sometimes your stocks can by-pass your stop-loss amount when the market isn’t open. Upon open, everyone is trying to get out of their positions alongside you. It can sometimes not work the way you would like. Options can be a more sturdy way to protect your downside.
4) Options can be an excellent way to make extra income on some of your longer-term plays. If I have 1,000 shares of AT&T, I could decide to have five options contracts open continually. If the price moves in my play’s direction, the worst that happens is that someone pays the required amount for my stocks. If my options expire without being called, I keep my stocks and the income that someone paid. Nice! I can then repeat it. I envision myself doing this play the most.
5) Options trading has been around for a long time. The book has a great history section. Options trading started in 17th century Holland during “Tulip Bulb Mania.” I don’t want to go too much into it because I will do a complete article on this topic. Tulip Bulb Mania is interesting because it shows how trading euphoria has been around since before the stock market.
Options trading may be a great way to protect your investment, make money, and make passive income on top of dividends and capital gains. However, it is not the “win button.” You have to know what you are doing. As you get into more complex plays, more complex issues can arise. You need to have an entry and exit strategy. Trading is not an environment for emotional or irrational folks who lose focus or abandon plans.
There is a lot to think about before you begin options trading. “The Options Playbook” is something that everyone in the stock market should read, no matter what you think of options. Whatever I read, Seeking Alpha, I see a lot of talk about these options plays. It is good to have a reference. The more information we have, the more informed decisions we can make. If you are looking for a well-written book, this is it; plus, it’s written in layman’s terms and even has pictures. It is beginner-friendly, and I highly recommend this book to anyone invested in the stock market.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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