lystn

Hey everyone, welcome back. On today’s daily call, we’re going to talk about how long should you learn before trading options or I guess really, how long should you prepare, study, do any paper trading, any of that type of stuff before you really start getting into options trading. I think this is obviously a little bit subjective to how you learn. Some people just generally first (to start off) learn very quickly. They grasp concepts very easily. They can hear things one or two times and totally understand it and it’s cemented in their brain. Then other people obviously, you just need a little bit more time and that’s just a different way of learning. Here’s my suggestion though. My suggestion is if you’ve never traded options before, have no clue, I definitely suggest you spend a good couple of weeks or months depending on how quickly you learn just trying to understand the terminology and hear the framework and hear people talk about it, see people making trades, just trying to get your feet wet in the ecosystem. It’s like I guess immersion in a foreign country where you’re trying to learn the language. You’re just like walking around and listening and watching to what people are doing. You may not be participating just yet, but you’re trying to just immerse yourself in that state of mind or that framework or that ecosystem basically. I do think that paper trading has its place as far as teaching the mechanics of how platforms work and how markets react and how pricing moves. However, what I think you should do if you do start paper trading early is I think you should use it for what it’s designed to be and that is basically, it’s designed to be practiced. To use a sports analogy or even like music, when you play music, you probably practice 15 hours for potentially a show or recital that you do that maybe last an hour. There’s a lot of preparation, a lot of practice of playing the song over and over and over and over again or bits and pieces of a song over and over again to actually just play it one time, when it actually comes to the stage, the show, whatever you want to do. I think that same type of methodology could be used in options trading and that’s how people should use it. People use paper trading like it’s the real deal. While I understand why people do that, I (to some degree) disagree with that because that’s not what it’s meant to be. It’s meant to be something you practice over and over and over again. Here’s what I would do with paper trading, just to use more or a concrete example. If you are trying to learn how to do an iron condor strategy where you’re selling options, credit spreads on both sides to create a neutral, risk-defined strategy, I would make an iron condor trade like 30 times in one day for a week. Literally, I would try to go out and just mechanically make the trade over and over and over and over again, as many times as I could that day. The next day then, I would close all 30 trades. It’s not to teach you how to day-trade. I’m not trying to teach you how to day-trade. You’re just trying to learn the mechanics to start. Like, “What do you do?” It’s like playing an instrument like, “Where do you put your fingers?” Forget about how good the sound is coming out right now. You just need to first learn where to put your fingers and how to hold it and what to do and that takes a little bit of time. That’s how you should apply your learning to options trading as well, is you should try to learn the mechanics first then try to perfect the sound, perfect the trade. Now that you know the mechanics, now you can start digging in deeper into finding great pricing and becoming neutral in your balance, in your portfolio, getting a good diversity or trades. All that stuff comes later after you just learn how to freaking make a trade, how to actually select strike prices and see how that whole process works. You should use paper trading like riding a bike in training wheels and really wear those things out. I know like my dad used to say when I was learning how to ride a bike, he used to say I would blow through training wheels until I just figured out that the training wheels fell off and I was just riding because I rode so, so, so much as a kid with those training wheels and initially, I wore those wheels out and that’s what you should do with paper trading, is you should use the system for what it’s really designed to be and that is to take a lot of shots, to make a lot of trades, to screw up for sure and learn how the mechanics work, so that when you get to the live trading eventually that you can actually make one or two really good trades. Like music, you practice for 15 hours to play a one hour live show or a one hour live recital and you want that to be really good. But you can’t just practice by doing one hour of paper trading. One paper trade does not equate to a really good live trade later on. Hopefully I drove home that point. How long should you learn? Look. I think you should take things in stages or steps really. You should learn concepts and that’s why we built Option Alpha, is around this whole conceptual learning process that you should learn concepts deeply and then move onto the next concept. There’s cross-pollinization if you will of one concept to another and I think that’s the best way to learn. I suggest you like for example, learn all about options basics. Learn about just the basic terminology first then learn about the basic strategies then learn about option selling strategies, option buying strategies, option directional neutral strategies then learn about technical analysis then learn about risk management then learn about earnings trades. These conceptual category-based learning, that I think is the best way to go. Ultimately, I think you could probably start trading in a couple of months. Start small with some credit spreads like we talked about in one of the previous daily calls. Start with some credit spreads where you have very little risk. Most credit spreads you can build out have maybe $60, $70 of total risk. I think it’s worth it after you’ve done a lot of paper trading and you’ve actually learned some concepts to start putting money in place. It doesn’t mean that you’re going to win right away because you may not, probably a 70% chance you will if you trade the way we do, but it’s getting you active in that ecosystem and the community. To one more time just relate it to an analogy of learning a language or being immersed in a new country, when you go to a new country and after you’ve walked around a little bit, you get your feel for the people, you hear, you listen, you watch, you don’t just start with a full blown conversation with somebody if you’re learning a language, you start small talk. “Hi. Hello. Welcome. Thank you. Please.” All of those very basic elements and that’s what you should do with trading. Start with very small trades and just do them one by one until you start building your trading vocabulary if you will to keep that analogy rolling, but you just start building that out over time. Start with one credit spread trade then start doing two at a time then a week or two later, you feel more comfortable, okay, now do another type of trade and start building it from there. Hopefully this really helps out. I know this is a huge topic that people have a lot of questions on, but I hope this daily call really helped you. If it did, let me know. Share us online. Give us a review and rating. Until next time, happy trading!