What Are The Best Options Trading Books?

best options trading books

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When you invest in stocks, you can make money when they rise or pay dividends. But how do you protect your nest-egg when stocks fall?

How do you earn income regularly even when share prices don’t increase over time and companies don’t pay dividends?

Options are popular among investors and traders looking to limit downside risk, generate income regularly on existing portfolio holdings, and speculate on price moves.

Experienced options traders can significantly lower risk on portfolio holdings during stock market crashes and can regularly earn income by trading various options strategies.

However, options can be risky when applied incorrectly. So, we compiled a list of the best options trading books to help you get up to speed quickly.

1 – Options As A Strategic Investment

Larry McMillan is widely regarded as an options guru. He has been featured on CNBC and Bloomberg TV, traded professionally, and been awarded the prestigious Sullivan award by the Options Industry Council for his contributions to the U.S. options markets.

He is also the author of one of the seminal works in options trading: Options As A Strategic Investment.

McMillan’s book is a long-time bestseller and must-read for any student of options trading strategies.

It is so comprehensive that it may be the only options book you ever need.

Indeed it earned McMillan so much respect that he has been sought after for quotes by Barron’s, Futures Magazine, and TheStreet.com among others.

It’s no surprise McMillan became an options expert. He is highly quantitative, having earned a B.S. Degree in Mathematics and an M.S. in Applied Mathematics and Computer Science.

But he is not just a numbers guy. He also communicates and teaches in a clear, matter-of-fact way that makes it easy for readers to follow along and pick up the options techniques he describes in Options As A Strategic Investment.

> Related: Best Options Trading Brokers

What You Will Learn

Stock Options Basics
  • Exercise and assignment
  • Options symbology
  • Order entry
  • Profit graphs
Covered Call Writing
  • The importance of covered call writing
  • The total return concept of covered writing
  • Computing return on investment
  • Execution of the covered write order
  • Selecting a covered writing position
  • Protection in a covered write
Call Buying
  • Risk and reward for the call buyer
  • Which option is a buy?
  • Advanced selection criteria
Other Call Buying Strategies
  • Synthetic put / Protected short sale
  • Simulated straddle / Reverse hedge
  • Ratio of long calls to short stocks
Naked Call Writing
  • Uncovered (naked) call options
  • Philosophy of selling naked calls
  • Risk and reward
Ratio Call Writing
  • The ratio write
  • Selection criteria
  • Variable ratio write
Bull Spreads
Bear Spreads
  • Ranking bear spreads
  • Uses of bear spreads
Calendar Spreads
  • Neutral calendar spread
  • Bullish calendar spread
  • Three expiration series
Butterfly Spreads
  • Selecting the spread
  • What is a butterfly spread?
Ratio Call Spreads
  • What is a ratio call spread?
  • Selecting the ratio call spread
Combining Calendar & Ratio Spreads
  • Ratio calendar spread
  • Choosing the spread trade strategy
  • Delta neutral calendar spreads
Reverse Spreads
  • Reverse calendar spread
  • Reverse ratio spread
  • Reverse ratio backspread
Diagonalizing a Spread
  • Diagonal bull spread
  • Owning a call for “free”
  • Diagonal backspreads
Put Option Basics
  • Put strategies
  • Pricing put options
  • Effect of dividends on put premiums
  • Exercise and assignment
Put Option Buying
  • Put buying vs short sale
  • Selecting which put to buy
  • Ranking prospective put purchases
  • Loss limiting actions
Stocks & Puts
  • Which put to buy?
  • Tax considerations
  • Put buying as protection for the covered call writer
  • No cost collars
Buying Puts Alongside Calls
  • Straddle buying
  • Selecting a straddle buy
  • Buying a strangle
The Sale of a Put
  • Uncovered put sale
  • Naked put write
  • Buying stock below market price
  • Covered put sale
  • Ratio put writing
The Sale of a Straddle
  • Covered straddle write
  • Uncovered straddle write
  • Selecting a straddle write
  • Strangle (combination) writing
Synthetic Stock Positions
  • Synthetic long stock
  • Synthetic short sale
  • Splitting the strikes
Basic Put Spreads
  • Bear spread
  • Bull spread
  • Calendar spread
Spreads Combining Calls & Puts
  • Butterfly spread
  • Combining an options purchase and a spread
  • Complex options strategies
Ratio Put Spreads
  • Ratio put spread
  • Deltas
  • Ratio put calendar
  • Ratio calendar combination
LEAPS
  • LEAPS basics
  • Pricing LEAPS
  • LEAPS vs short-term options
  • LEAPS strategies
  • Speculative option buying with LEAPS
  • Spreads using LEAPS
Options & Treasury Bills
  • How the Treasury bill/options strategy works
Arbitrage
  • Put and call arbitrage
  • Dividend arbitrage
  • Conversions and reversals
  • Carrying costs
  • Risks in conversions and reversals
  • Interest plays
  • Box spreads
  • Variations on equivalence arbitrage
  • Effects of arbitrage
  • Risk arbitrage using options
  • Pairs trading
  • Block positioning
Mathematical Applications
  • Black-Scholes Model
  • Expected return
  • Applying calculations to strategy decisions
  • Institutional block positioning
Index Options & Futures
  • Cash-based options
  • Options strategies using index options
  • Put-call Ratio (PCR)
Stock Index Hedging Strategies
  • Market baskets
  • Program trading
  • Index arbitrage
  • Market basket risk
  • Impact on the stock market
  • Simulating an index
  • Trading the tracking error
Index Spreading
  • Inter-index spreading
Structured Products
  • Riskless ownership of a stock or index
  • Structure of a structured product
  • Cash value
  • Price behavior prior to maturity
  • PERCS
  • Price behavior
  • PERCS strategies
Futures & Futures Options
  • Futures contracts
  • Options on futures
  • Futures options trading strategies
  • Commonplace mispricing strategies
Futures Options Strategies for Futures Spreads
  • Futures spreads
  • Futures options in futures spreads
Basics of Volatility Trading
  • Moving averages
  • Implied volatility
  • Volatility of volatility
  • Volatility trading
How Volatility Affects Options Strategies
  • Vega
  • Implied volatility and delta
  • Effects on neutrality
  • Position vega
  • Outright options purchases and sales
  • Time value premium misnomer
  • Volatility and the put option
  • Buying and selling straddles/strangles
  • Call bull spreads
  • Vertical put spreads
  • Put bear spreads
  • Calendar spreads
  • Ratio spreads and backspreads
Distribution of Stock Prices
  • Volatility buyer’s rule
  • Distribution of stock prices
  • Misconceptions about volatility
  • Pricing of options
  • Probability of stock price movement
  • Expected return
Volatility Trading Techniques
  • Two ways volatility predictions can be wrong
  • Trading the volatility prediction
  • Trading volatility skew
Advanced Options Concepts
  • Neutrality
  • The Greeks
  • Advanced mathematical concepts
Taxes
  • Basic tax treatment of options
  • Exercise and assignment
  • Special tax problems
  • Tax planning strategies for equity options
Best Options Strategy
  • Mathematical ranking

2 – Trading Options For Dummies

Trading options has its pros and cons. You can buy protection, similar to insurance in order to limit downside risk on stocks you own, but it will cost you money out of pocket to do so. And you can generate income with covered calls but limit upside gains.

So how do you weigh the costs and benefits of trading options?

Trading Options For Dummies is written to help you make those cost-benefit assessments, build strategies to win no matter what the market conditions, and broaden your portfolio with equity, index, and ETF options.

It is not as exhaustive in its coverage as McMillan’s Options As A Strategic Investment but it will get you up to speed on key options trading strategies that enable you to:

  • Buy equities at lower prices
  • Increase your income on existing and new portfolio holdings
  • Protect your investments from share price declines
  • Benefit from share price movements, up and down, without outright owning or selling equities

What You Will Learn

Options Trading Basics
  • Understanding options
  • Differentiating between options styles
  • Using options in challenging markets
  • Option contracts
  • Valuing options
  • Options mechanics
Options Exchanges
  • U.S. options exchanges
  • Option costs and benefits
  • Option pricing factors
Option Risks and Rewards
  • Option trading risks
  • Risk graphs
  • Risk and reward profile
Market Swings
  • Macro factors
  • Stock market bias
  • Call and put activity
  • Volatility as a proxy measure for fear
  • Breadth and sentiment tools
Technical and Fundamental Analysis
  • Stock chart technicals
  • Identifying strong sectors
  • Sector volatility tools
  • Projecting prices for trading
Practice Trading
  • Monitoring options greek changes
  • Paper trading as a strategy
  • Using trading systems
  • Shifting from knowledge to mastery
Designing A Trading Plan
  • Developing a reliable plan
  • Managing your costs
  • Optimizing order execution
Types of Options
  • Index options
  • Style risk
  • Exercising American options
  • Exercising European options
  • Option obligations
  • American-style index options
Protecting Your Portfolio with Options
  • Long stock protection
  • Limiting short stock risk with calls
  • Hedging your bets with options
  • Avoiding adjusted options risk
Increasing Profit Potential, Decreasing Risk
  • Leveraging assets to reduce risk
  • Combining options to reduce risk
Combination Strategies & Spreads
  • Combining options with stocks
  • Vertical spreads
ETFs and Options
  • Exchange-traded Funds
  • Reducing portfolio volatility with ETFs
  • Sector ETFs
Making Money In Any Market
  • Limiting directional risk
  • Neutral view vs neutral position
  • Trading with delta
  • Trade adjustments
Volatility Trading Opportunities
  • Implied volatility levels
  • Understanding ratio spreads
  • Using ratio backspreads
Trading Profitably In Sideways Markets
  • Winning positions in sideways markets
  • Butterfly positions
  • Condor positions
Ten Top Options Strategies
  • Married Put
  • Collar
  • Long put Trader
  • LEAPS Call Investor
  • Diagonal Spread
  • Bear Call Credit Spread
  • Straddle
  • Call Ratio Backspread
  • Put Ratio Backspread
  • Long Put Butterfly
Ten Do’s & Don’ts Of Options Trading
  • Do focus on managing risk
  • Don’t avoid losses
  • Do trade with discipline
  • Don’t expect to remove your emotions
  • Do have a plan
  • Do be patient
  • Don’t suffer from analysis paralysis
  • Do take responsibility for your results
  • Don’t stop learning
  • Do love the game

3 – Understanding Options

If you are new to options trading and want a clear guide that is jam-packed with charts and strategies, Understanding Options 2E by Michael Sincere is a bestseller with good reason.

Sincere looks to help readers understand options trading basics, overcome anxiety associated with the obligations of options, and get comfortable with the Greeks – factors which affect options prices.

The basic strategies and more advanced options strategies are covered, plus the book is filled with helpful options tips.

So, whether you are learning for the first time about married puts, collar trades, and covered calls, or credit and debit spreads, straddles and strangles, Sincere walks you step-by-step through applying options with an eye on risk and reward.

What You Will Learn

What You Need To Know First
  • How to open an options account
  • Characteristics of options
Selling Covered Calls
  • Writing covered calls
  • How to choose the right covered call
  • Step-by-step selling covered calls
  • Managing your covered call position
  • Assignment: your obligation to sell
How To Buy Calls
  • Introduction to call strategies
  • How to choose the right call option
  • Volatility and options pricing
  • Step-by-step: buying calls
  • Managing your call position
  • Exercise: your right to buy
How To Buy Puts
  • How to choose the right put option
  • Managing your put position
  • Protective and married puts
  • The collar trade
Intermediate and Advanced Strategies
  • Credit and debit spreads
  • Buying straddles and strangles
  • Selling cash-secured and naked puts
  • Delta and other Greeks
  • Trading options with ETFs, Indexes, Weeklys, and Mini-options
  • Advanced strategies

What options trading books have you read that you would recommend? Let us know what the best options trading books are in your opinion, we would love to hear from you.

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