Getting Started Trading Options

11/22/2013 6:00 am EST


James Bittman

Senior Instructor, Chicago Board Options Exchange

The CBOE's senior instructor Jim Bittman offers some words of wisdom for new traders who have just started dipping their toes in the exciting world of option trading.

SPEAKER 1:  Traders who are just starting out may not have realistic expectations of what to expect from their trading, how much work it really takes to be successful in the business.  My guest today is Jim Bittman to talk about that.  Jim, what advice do you have for beginners who want to make some money here?  Maybe they have a job, they don’t want to go fulltime just yet.  What should they be doing?

JIM BITTMAN:  The key is the word business.  I mean, you really have to think it through.  What is your primary strategy?  How much time are you going to devote to it?  What are your sources of information?  If you read a newsletter that gives you good stock ideas then you need to combine that with technical analysis and covered writing, where you buy the stock and sell the covered call, is a very good beginners’ strategy.  It gets you in touch with touch with the market.  It teaches you about market timing and stock picking.  It reinforces success because you sell a covered call.  Market goes up.  Stock gets called away.  If you’re wrong, which we all are from time to time then the covered call lowers your breakeven point.  It’s a good beginning strategy but you’ve got to be consistent.  If you’ve got a job, two hours a week, maybe more if you enjoy it and get into it.

SPEAKER 1:  The idea that traders have to be monitoring their positions at all time, sometimes I know for me, always it was a hindrance because I would mess with my positions.  What about the idea of, especially for someone who has a job, putting the positions on, profit targets in, stop losses in, and just walk away from it.  Whatever gets hit gets hit. 

JIM BITTMAN:  It is a very good beginning way to do it.  I do that in my IRA account even with all the experience that I have.  I have what I think are good quality stocks.  I sell some covered calls.  If the market goes down then my broker’s instructed to close out the whole position.

SPEAKER 1:  For someone who is just buying calls or buying puts, how soon should they get into the spreads and all the other kinds of things that really, it seems like professional traders do.  Most of them are not just buying calls and puts as making their living.

JIM BITTMAN:  I think you should always learn about strategies that are more complicated than you’re doing.  Then as you feel comfortable, you can answer that for yourself.  Some people will just buy calls and puts for quite a long time, several years, before they ever do a spread.  Other people will get into spreads after only a few months or six months.

SPEAKER 1:  Obviously, there’s a good place, a website to go to for a beginner to learn.  Tell me what that is.

JIM BITTMAN:  Well, I work for the CBOE and I’d love to plug our website and our educational offerings but many brokerage firms also have good offerings and so the first place is your broker.  Go to your broker.  See what they have on their website.  Then you can come to the CBOE.  Money Show has got some interesting webinars and seminar offerings.  There’re a lot of offerings out there. 

SPEAKER 1:  Jim, thanks for your time.

JIM BITTMAN:  I’m glad to be here, Tim.

SPEAKER 1:  You’re watching the Video Network. 

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