Trading Education: Our Favorite Books
Readers often ask us to recommend books on strategies and techniques involving stocks and options. Of the publications I have reviewed personally, a few come to mind as potential candidates.
This is the bible of options trading, used by professional as well as retail participants, and it is the benchmark by which all other books of this subject are compared. The chapter on covered-writes provides a complete explanation of the "Total Return Concept," which is the foundation of our conservative approach to the covered-write strategy here at the OI.
This book explains how to develop a successful investment plan by creating and utilizing covered-calls in a conservative stock-option portfolio. It is likely the only (recent) book completely devoted to the strategy of writing calls against long-term portfolio issues.
Not one you would expect in this group, but Dr. J's book is an excellent source of information on the advantages of buying LEAPS as a substitute for stock ownership with the idea of writing "covered" calls for consistent, low risk profits in a conservative stock-option portfolio.
This is a must-read for serious option traders as it covers the concept of volatility and pricing theory in great detail. It is the other "bible" of professional traders and I have personally seen it at many of the trading desks on the CBOE floor. However, if you want to learn about many of the same concepts in a more user-friendly format, consider the next book.
Another great book by one of the foremost volatility specialists, covering risk-reward analysis, exit-adjustment methods, and the most common mistakes made by inexperienced option traders. The book is an excellent resource for "premium sellers" as it explains the fundamentals of a statistical approach to option trading and provides some guidance on when to implement those strategies.
One of the most popular and well-known books about trading, it covers three major areas that are key to success; psychology, trading tactics and money management. This material is essential to developing discipline when participating in the stock market and learning how to avoid the pitfalls of emotional trading.
As you can see, there is a substantial amount of written material on the subject of covered-calls. However, less experienced traders should also read the educational narratives posted in this section each week, as well as past CCS articles. In addition, read any other worthy trading publications and learn all you can about option pricing and the effects of volatility on common option strategies. Of course, there are also a plethora of great articles by other OI researchers, covering just about every imaginable options trading technique used by retail market players. Although we are often asked to suggest specific techniques for exiting a trade, there is simply no way to produce an all-encompassing list of guidelines, or a step-by-step process to close every type of position. The methods we use are similar to those discussed by the OI traders in the ongoing educational articles and each is based on simple, proven money-management techniques; the most important of which is "keep the losses small."