Options trading is a type of trading that happens in the options market. An option is a contract that gives a buyer the right to buy or sell the asset at a specific price before a deadline. These options are then used to speculate, predict income, and minimize risk.
Many prefer options trading to stock trading since options traders can profit from a wide variety of stock market outcomes. Not only that, but options trading can be accomplished with limited risk. To find out if options trading is the right way for you to make a profit, read up on what the experts have to say, and how they’ve succeeded from trading options. We’ve done the research to find you the best books on options trading.
Best Books On Options Trading
Before you dive into the options trading world, it’s important to have thorough knowledge. Below are the top 10 books on options trading that can help you prepare to gain profit.
1. Option Volatility and Pricing by Sheldon Natenberg
Option Volatility and Pricing remains among the most read books among active options traders from all around the world. In fact, it has just been updated to reflect the most current developments and trends in option products and trading strategies. Written with the utmost clarity, this book demonstrates how you can possess the critical essentials to successful trading.
Drawing on his experience as an expert trader, Sheldon Natenberg examines popular theories and their relation to the reality of options trading. While reviewing a wide variety of trading strategies, he makes it easy for the reader to decide which one will suit them best on their road to trading success.
Key Topics and Themes
- The Basics of Options: Natenberg provides an in-depth understanding of options, including their purpose and the mechanics of buying and selling them. He covers essential concepts like intrinsic value, time value, and moneyness (whether an option is in the money, at the money, or out of the money).
- Volatility: The concept of volatility, a measure of the degree of variation in a financial instrument’s trading price, is central to the book. Natenberg explains both historical and implied volatility, and their impact on option pricing.
- The Greeks: Natenberg introduces and explains the “Greeks”—a set of measures that describe the risk associated with an options position. These include delta, gamma, theta, vega, and rho, each representing a different aspect of risk.
- Option Pricing Models: The book discusses in detail the Black-Scholes model and the binomial option pricing model, two of the most popular models used to price options. Natenberg elaborates on how these models work and their limitations.
- Volatility Smile and Surface: Natenberg discusses the “volatility smile” and “volatility surface,” which describe patterns of implied volatility for options across various strike prices and expiration dates. He explores their implications for option pricing and risk management.
- Option Trading Strategies: The book explains a variety of option trading strategies, such as spreads, straddles, and strangles. Natenberg covers when to use each strategy and how they relate to the trader’s expectations about the underlying security’s future price movements.
- Risk Management: Natenberg delves into various risk management techniques for options trading. He explains how to balance potential rewards with the level of risk a trader is willing to accept.
2. Options as a Strategic Investment by Lawrence G. Mcmillan
This revised 5th edition of the best-selling book Options as a Strategic Investment provides the reader with the latest market-tested tools for improving earnings potential and downsizing risk. No matter how the market is performing, Mcmillan is here to teach you how to maximize success. This book is perfect for investors who have familiarity in the options market and are looking to step up their game.
In this, Lawrence G. Mcmillan goes into buying and selling strategies, a comprehensive overview of futures, and detailed guidance for investing.
Key Topics and Themes
- Introduction to Options: McMillan provides a solid foundation of the basics of options, including terminology, the difference between calls and puts, and the mechanics of options markets.
- Option Pricing Theory: The book delves into the principles behind option pricing and discusses models like Black-Scholes and binomial tree model, explaining how they can be used to price options accurately.
- Options Trading Strategies: McMillan covers a wide range of trading strategies for different market conditions, from simple strategies like buying calls and puts to more advanced techniques like straddles, strangles, and spreads. He offers detailed analysis and practical examples for each.
- Risk Analysis and Management: The book explores the concept of risk in option trading, covering the use of the “Greeks” (delta, gamma, theta, vega, and rho) to measure and manage risk. McMillan explains how each Greek impacts an option’s price and how they can be used in trading strategies.
- Hedging with Options: McMillan explains how options can be used to hedge against potential losses in other investments. He discusses protective puts, covered calls, and other strategies that can help limit downside risk.
- Volatility: The concept of volatility, both historical and implied, is discussed extensively. McMillan explains how it influences option prices and how traders can take advantage of changes in volatility.
- Advanced Concepts: The book covers advanced concepts like synthetics, arbitrage, and mathematical applications in options trading, providing insights for more experienced traders.
- Stock and Futures Options: McMillan discusses options on various asset classes, including stocks and futures. He outlines the differences in trading these types of options and the unique considerations for each.
3. The Options Playbook by Brian Overby
The Options Playbook was created to demystify options trading and teach investors a variety of option plays depending on market conditions. By reading this, you’ll be more confident options trading and have the skills to predict market behavior. In this, Brian Overby explains the 40 most popular options strategies and how you can get to action.
For the first time options trader, this book will teach you how to understand the market, avoid common beginner’s mistakes, and start experimenting right away.
Key Topics and Themes
- Options Basics: Overby starts with the basics of options, introducing terms and concepts like calls, puts, strike price, expiration, intrinsic value, and time value. He makes sure readers understand these fundamental aspects before proceeding to more advanced topics.
- Trading Strategies: The book features 40 different option strategies for bullish, bearish, and neutral markets. These strategies range from simple ones like long calls and long puts to more complex plays like iron condors and butterflies. Each strategy includes a detailed explanation, rationale, and risk-and-reward assessment.
- Strategy Implementation: Overby outlines specific steps for implementing each strategy, including how to set up the trade, select the right contract, and exit the position. This hands-on approach helps readers understand not just the theory, but the practical aspects of options trading.
- Options Greeks: The book introduces the concept of the Greeks (delta, gamma, theta, vega, and rho) and explains how they can help traders understand the risk and potential reward of an options position.
- Volatility: Overby covers the crucial role of volatility in options trading, differentiating between implied and historical volatility. He emphasizes the importance of understanding volatility when choosing and executing strategies.
- Pricing and Valuation: The book delves into how options are priced and the factors that impact their value. Overby explains concepts like intrinsic and extrinsic value and time decay in a straightforward manner.
- Online Tools: As the Director of Business Development for an online brokerage, Overby integrates the use of online tools and platforms into his explanations, showing readers how to utilize these tools in their options trading.
- Market Scenarios: The book includes various market scenarios to help readers understand how different strategies work under specific market conditions.
4. The Option Trader’s Hedge Fund by Dennis A. Chen and Mark Sebastian
In this book, hedge fund manager and option trading coach Chen and Sebastian show you how to create a steady income from options trading. You’ll learn how to manage your trades and run your options portfolio as a real business. To put it simply, this is the perfect business framework for trading equity and index options.
By reading this, you’ll be able to apply your option trading strategy to a steady, predictable business model with consistent returns. If you’re looking to manage an options-based portfolio the right way, this is the book for you.
Key Topics and Themes
- Business Approach to Trading: The authors propose treating options trading like running a business. They emphasize strategic planning, risk management, capital allocation, and consistent evaluation of performance.
- Creating Your Own Option Trading Company: The book walks readers through the process of setting up their own “mini hedge fund” to trade options, discussing how to define trading objectives, manage capital, and handle administrative tasks.
- Options Basics: The book covers the basics of options, including the differences between calls and puts, intrinsic and extrinsic value, moneyness, and expiration.
- Risk Management: Chen and Sebastian detail how to identify, quantify, and manage risk in options trading. They discuss various risk measures, including the Greeks (delta, gamma, theta, vega, and rho).
- Income Generation: The authors focus on strategies that can generate consistent income, such as selling premium through credit spreads, covered calls, and iron condors. They detail how to select, execute, and manage these trades.
- Trade Adjustments: The book emphasizes the importance of adjusting trades in response to market changes. It provides specific guidelines for when and how to adjust trades to protect profits or reduce losses.
- Portfolio Management: The authors discuss how to manage a portfolio of options trades, including how to allocate capital across multiple trades and balance risk and reward.
- Option Pricing and Volatility: The book delves into the fundamentals of option pricing and the role of volatility. It explains how changes in volatility affect option prices and how traders can use this information to their advantage.
5. Understanding Options 2E by Michael Sincere
Understanding Options 2E is the options trading best-seller of the modern age. Created to suit today’s turbulent market, this book offers relevant advice for all options traders. Written straightforwardly, Michael Sincere’s advice is perfect for anyone looking to start on the right foot in the increasingly popular options market.
This book covers everything for new and experienced options traders. This is the perfect book for you to read before you start options trading to get insight on updated facts, helpful charts, and critical strategies for success. \
Key Topics and Themes
- Options Basics: Sincere introduces the fundamental concepts in options trading, such as calls, puts, strike prices, expiration dates, premiums, and the difference between buying and selling options. He provides clear explanations and uses real-world examples for easy understanding.
- Trading Options: The book provides a step-by-step guide on how to trade options, including how to open an options account, place orders, and interpret option symbols. Sincere gives practical advice on how to navigate the trading platform and avoid common pitfalls.
- Option Pricing: Sincere explores the factors that influence option pricing, including intrinsic value, time value, and volatility. He explains these concepts in a simplified manner, making it easier for beginners to grasp.
- Understanding the Greeks: The book introduces the Greeks (delta, gamma, theta, vega, and rho) which are fundamental to understanding the risks and potential rewards of options trading. Sincere provides an easy-to-understand explanation of each.
- Trading Strategies: The book covers basic options trading strategies, such as buying calls, buying puts, covered call writing, and protective puts. Sincere explains when and why each strategy should be used.
- Risk Management: Sincere emphasizes the importance of managing risk in options trading. He provides tips on how to set stop-loss orders and limit losses, as well as how to protect profits when a trade is going well.
- Volatility: The book covers the concept of volatility, both historical and implied, and explains its significant impact on option pricing. Sincere discusses how traders can use volatility to their advantage.
- Market Psychology: Sincere delves into the psychology of trading, discussing the emotional pitfalls that traders often fall into, such as fear and greed, and how to overcome them.
6. The Bible of Options Strategies by Guy Cohen
The Bible of Options Strategies is the definitive guide for practical trading strategies. In this, well-known options trader Guy Cohen presents today’s most effective strategy for options trading. He goes over how and why they work, when they’re appropriate, and how to use each option with confidence.
When it comes to taming the complexity of options, this is the book to have right by your side. Cohen has been praised for his easy-to-understand explanations, making sure that options traders are set to gain profit within their first few months of trading.
Key Topics and Themes
- Options Basics: Cohen starts with a review of the basic elements of options trading, providing a foundation for the subsequent discussion of strategies.
- Options Strategies: The heart of the book is its detailed overview of 60 different options strategies. Cohen covers basic strategies like buying calls and puts, as well as more complex ones like various types of spreads, straddles, strangles, butterflies, and condors.
- Strategy Selection: For each strategy, Cohen provides an analysis of the market outlook it’s best suited for (bullish, bearish, or neutral) and the volatility outlook (rising, falling, or steady). This allows readers to select strategies that best match their market expectations.
- Risk and Reward: Cohen provides a detailed risk and reward profile for each strategy, helping traders understand their potential profit and loss before entering a trade.
- Trade Management: Cohen offers advice on how to manage each trade, including when to exit for profit or to cut losses. He also explains how to adjust trades in response to changing market conditions.
- Strategy Implementation: Each strategy is explained step-by-step, including how to set up the trade and choose the right options. Diagrams and real-world examples are used to help readers understand how each strategy works.
- Options Greeks: The book includes a discussion of the “Greeks” (delta, gamma, theta, vega, and rho) and their importance in understanding the risk and potential reward of options strategies.
- Volatility: Cohen discusses the crucial role of volatility in options trading, explaining how changes in volatility can affect the profitability of different strategies.
7. The Only Options Trading Book You’ll Ever Need by Russel Allen Stultz
In this world-wide options trading classic, Russel Allen Stultz explains how to create a steady income from trading options. By following Stultz’s trading rules and options strategies, many readers have claimed to have quadrupled their brokerage account in less than two years. This book explains helpful strategies and expands on how you can implement them.
In addition to modern option trading strategies, this book elaborates on trade management techniques, strategy goals, and profit and stop-loss recommendations.
Key Topics and Themes
- Basics of Options Trading: The book begins with an introduction to the fundamental concepts of options trading. Stultz explains what options are, how they work, and the language of options trading, like strike prices, expiration dates, calls, and puts.
- Understanding Option Contracts: Stultz dives into the details of option contracts, explaining the rights and obligations associated with buying and selling options.
- Trading Strategies: The book introduces a variety of options trading strategies. From basic ones like buying calls and puts, to more advanced strategies like spreads, straddles, and strangles, Stultz provides detailed examples and scenarios.
- Risk Management: Stultz emphasizes the importance of risk management in options trading. He discusses how to set stop losses, adjust positions, and use options strategies to hedge against market risk.
- Technical Analysis: The book delves into the application of technical analysis in options trading. Stultz explains how to read charts, identify trends, and use indicators to make informed trading decisions.
- Options Pricing: Understanding how options are priced is a key aspect of options trading. Stultz explains intrinsic and extrinsic value, time decay, and how volatility impacts option pricing.
- Understanding the Greeks: The Greeks (delta, gamma, theta, vega, and rho) are introduced and explained. Stultz shows how these metrics can be used to analyze risk and potential returns in options trading.
- Trading Psychology: Stultz discusses the psychological aspect of trading, highlighting common emotional pitfalls and providing tips on maintaining discipline, patience, and consistency.
- Practical Tips: The book is filled with practical tips and actionable advice. Stultz offers insights on choosing a broker, setting up a trading account, and managing trades effectively.
8. Get Rich With Options by Lee Lowell
In Get Rich With Options, Lee Lowell goes into his four winning strategies straight from the exchange floor. In this detailed guide, you’ll learn how to trade stock and commodity options successfully. From the options market-maker himself, Lee Lowell provides you with key strategies that he’s learned from his time in the New York Mercantile Exchange.
This book provides you with the actionable expert advice that you need to achieve optimal results in the options market. Lowell explains how to set up a home-based options trading business, use options as a speculating instrument, and utilize the best options for trading strategies currently available.
Key Topics and Themes
- Introduction to Options: Lowell begins with a thorough introduction to options trading, explaining what options are, why they are valuable, and how they can be used for both hedging and speculation.
- Options Basics: The book covers the basic concepts of options trading such as calls, puts, strike price, expiration date, intrinsic value, time value, and moneyness.
- Option Strategies: Lowell outlines four main option strategies that he finds most effective:
- Selling Deep-in-the-Money Calls: This strategy involves selling calls with a strike price significantly below the current market price, collecting premium upfront.
- Selling Naked Puts: This strategy involves selling put options to collect premium, with the understanding that you may be obligated to buy the stock at a lower price.
- Selling Option Credit Spreads: This strategy involves selling a high-premium option while buying a low-premium option to limit potential losses.
- Leveraged Covered-Call Writing: This involves using borrowed money to buy the underlying security and then writing covered calls on it.
- Risk and Reward: Lowell goes over the potential risks and rewards of each strategy, providing readers with a clear understanding of what to expect from each trade.
- Trade Management: Lowell provides guidelines on how to manage these trades effectively, discussing when to exit the position, either for a profit or to cut losses, and how to handle the position as market conditions change.
- Real-World Examples: The book includes real-world examples to help readers understand the practical application of each strategy. These examples illustrate how the strategies work in different market conditions.
- Options Pricing and Volatility: Lowell covers the critical aspects of options pricing, including intrinsic and extrinsic value, and the impact of volatility. Understanding these factors helps traders to choose the most profitable strategies.
9. Getting Started in Options by Michael C. Thomsett
Getting Started in Options is an easy-to-read, illustrative guide of the complex world of options investing. Due to its complexity and potentially high-risk, many shy away from the opportunity to invest in options. Thankfully, Michael C. Thomsett’s proven strategies for success will set you up to gain profit in no time.
He’ll teach you how to make informed, profitable decisions, distinguish the real risk from the imagined threat, and maximize success in the end.
Key Topics and Themes
- Options Basics: Thomsett starts with a solid foundation, explaining what options are, how they work, and the fundamental terminology of options trading, such as calls, puts, strike prices, and expiration dates.
- Trading Options: The book provides a detailed guide on how to trade options, covering how to open an options account, place orders, and manage trades.
- Options Pricing: Thomsett introduces the concepts of intrinsic value, time value, and volatility, which are crucial for understanding how options are priced. He explains these complex topics in an easy-to-understand manner.
- The Greeks: The book introduces the concept of the Greeks (delta, gamma, theta, vega, and rho) and how they influence the price of options and the risk/reward profile of various options strategies.
- Options Strategies: Thomsett covers a variety of basic and advanced options strategies, from buying calls and puts to creating spreads and combinations. He provides clear explanations and real-world examples of each strategy.
- Risk Management: The importance of managing risk in options trading is emphasized. Thomsett provides guidelines on setting stop losses, adjusting trades, and using options strategies for hedging.
- Technical Analysis: The book explores how technical analysis can be used in options trading. Thomsett covers basic charting techniques and how they can be used to identify trading opportunities.
- Market Psychology: Thomsett discusses the psychological aspects of trading, including dealing with fear and greed, and the importance of maintaining discipline in trading.
10. The Ultimate Options Trading Strategy Guide for Beginners by Roji Abraham
If you’re looking to make a steady monthly income from trading options, this is the guide made for you. In this trading strategy guide, Roji Abraham explains the basics of options trading and six underutilized strategies that will help you profit. As Roji Abraham warns, if you go into options trading with insufficient knowledge, you will hit lots of risk and losses in the end.
Luckily, this guide was created to help you avoid common mistakes and stay afloat while options trading.
Key Topics and Themes
- Options Basics: Abraham begins by covering the basics of options trading. He explains the nature of options contracts, the difference between calls and puts, and basic terminology like strike price and expiration date.
- Understanding Option Pricing: The book offers an in-depth explanation of how options are priced, including the concepts of intrinsic value, time value, and the impact of volatility.
- Trading Strategies: The book introduces a range of options trading strategies suitable for beginners. These strategies include buying calls, buying puts, covered calls, and protective puts. Each strategy is explained in detail, with real-world examples to illustrate how they work.
- Risk Management: Abraham emphasizes the importance of managing risk in options trading. He explains how to use stop-loss orders and other risk management tools, as well as the role of diversification and position sizing.
- Options Greeks: The book provides an introduction to the ‘Greeks’ (delta, gamma, theta, vega, and rho), explaining how they can be used to assess the risk and potential reward of an options position.
- Technical Analysis: Abraham discusses the use of technical analysis in options trading, covering charting techniques, trend analysis, and the use of indicators such as moving averages and the relative strength index (RSI).
- Practical Aspects of Trading: The book also covers practical aspects of trading, including how to open a trading account, the mechanics of placing trades, and understanding brokerage fees and commissions.
- Trading Psychology: The book discusses the emotional challenges of trading and provides tips for maintaining discipline and managing emotions like fear and greed.
Final Thoughts: Best Options Trading Books
All in all, options trading is a great, unconventional way to get profit by trading in the market. That said, it isn’t widely popularized to the point where all investors know about options tradingâ€”reading up about how to start and utilize proven strategies for success is a great way to gain a steady income from trading options.
If you’re looking to learn more about trading you can also consider a trading course, such as Steven Dux’s Trading Techniques or Tim Grittani’s Trading Tickers. Gain all the knowledge you need and become a great trader!