I strongly urge readers of this letter to log on to Amazon and by a copy of Options for the Beginner and Beyond by W. Edward Olmstead. Options contracts offer investors a wonderful instrument for minimizing risk, while maximizing the upside, and I am going to recommend many more such strategies in the future.
So, if you want to have the slightest idea of what I am talking about, get yourself some grounding in this important field by reading this book. You don’t have to be a math genius to figure this stuff out, and the risk reward benefits are great.
Olmstead, a math professor at Northwestern University, starts out with a basic Options 101 course, going into the merits of puts and calls. He catalogues the exchanges where they are listed, and the vast number of products that can be traded, including stocks, bonds, commodities, currencies, and precious metals.
He goes into the mundane, but important details on the administration side of things, such as settlements. For the more technically inclined, he launches into options theory pricing, and goes into the origins and utility of the Black-Scholes equation.
We learn about the arcane world of what traders call “the Greeks”, the deltas, thetas, and vegas of individual positions. He then launches into basic option strategies, like call and put spreads, ratios, straddles, strangles, collars, and condors.
Don’t let these terms scare you off. It is really much easier than it sounds. In fact, you will be kicking yourself once you find out how easy it is. To order the book from Amazon please click here.
This is WHY (testimonial):
I was pondering an FXE trade alert from MHFT today when my cell rang with a Berkeley, CA area code. Since I know a couple people in that part of the world, I answered, and it was none other than John Thomas.
Had I not heard his voice on the MHFT webinars, I would have thought I was being punked. But given that I’m in the last month of a trial run, he actually called to find out how I was doing with the service and what I thought.
Here’s the short version of what I told him.
I’m a pretty experienced investor, but definitely not sophisticated when it comes to using options, or for that matter, trading currencies and commodities.
My first trade with MHFT – an (FXY) vertical call spread – literally scared the hell out of me, so I used a tiny position size. I think I made around $900 ($400 more than my trial subscription, so there’s that).
But through the process of using John’s trade ideas, I learned. Fast. Nothing will help you grasp the potential of option strategies like doing them. And as I write this, I have multiple positions on courtesy of MHFT that are on track to deliver double digit percentage gains in a matter of weeks!
I can’t quite comprehend how he knows so many well-placed people, but he’s incredibly adept at grabbing insights from them, turning these into an investment thesis, and making it incredibly clear and actionable to this reader base.
One day he’s writing about a chat with a three star general and the next you’re buying a call spread on Palo Alto Networks. He connects the dots in a ridiculously useful way.
But it’s more than just the idea, it’s the timing of the idea. The world is full of people who can say “hey, cyber-security is a big deal.” Or, “wow, the euro is getting killed.” But the actual trade execution to profit from that in the near term? He’s freaky good.
I also love the defined exit strategy. Look, if you’re the most disciplined human on the planet and never let a bad trade turn into a long term “investment,” more power to you.
I am not. I hate when I do it, but it’s happened more than once. With MHFT, the exit is well marked. You can’t miss it. Personally, I find that removes significant stress, not to mention risk.
Today, I was over at my local Schwab office – before John called – and was raving about MHFT. Not stark raving. Good raving. I’d be surprised if they aren’t signing up for a trial as I write this.
John, thanks for the call. That was a really nice surprise.
But more importantly, thanks for great work, thinking, and ideas. Enjoy your travels and I look forward to meeting you at one of your conferences.