Book Review > Trading Options for Dummies

George Fontanills is the founder of Optionetics an investment education service and provider of tools for investing. He knows the subject well.

Options Trading for Dummies is really a sawn off encyclopedia for options, complete with a comprehensive glossary and index. And I guess herein lies the dilemma – options and options trading is quite a complex exercise, as the 365 pages of this tome testify.

The first half, contains an explanation of the dynamics of how options work, the exchange system, risk profiles and the differences between options and stock. The subject is well covered.

The first half also covers very basic trading system development and technical analysis.

Once the introductory stuff was out of the way the book began to provide some thorough analysis of the ways options can be used and different strategies for trading them. As the book explains, options can be used in myriad of combinations, with each other or with stock. Each combination is explained, with the pros and cons discussed, so that one can get a reasonable feel for the hazards and benefits of any particular approach.

Also, throughout the second half of the book, some of the quirks of options eg variations in volatility, traps at exercise, are explained, so that one can be forewarned of any little unwanted surprises that await the unsuspecting.

Whilst the information is comprehensive, it must be remembered that it is written for the US option market, which is much more vibrant than the Australian market. The basic principles, trading combinations and strategies contained in the text are still the same, but some parts eg the discussions on applying option strategies to Exchange Traded Funds and the various put/call ratios are not relevant to the Australian market (although, as already stated, the underlying principles are).

it is also prudent to remember that the sheer volume of option trading in the US marks a significant difference to the applicability of much of the information to the Australian context.

I recommend this book to anyone contemplating buying and selling options, particularly if you are contemplating late nights/early mornings on the US market.

Jeff Manitzky is a member of the AIA.