Options Basics with Mikey

How to Paper Trade

If you were to do a search on the phrase "Paper Trading," you'll probably find millions of webpages. A while back a young man was telling me that he made $38,000 on a $100k start. When I informed him he had wasted time and energy, he was taken aback. His ego was way up and he was "Ready to Go" and objected to my calling this a waste of time. He would not listen and insisted he could dive in head first and take it to the moon. He opened a cash options account with $1000 and within 1 week he was calling me back and was wondering what happened to his portfolio which was now worth $518.

So what happened? Several Things:

  1. His entries and exits were off
  2. His timing was off
  3. He didn't buy properly
  4. He threw too much at plays

"So how do we fix this mess?" he asked. I told him I would help him if he promised me he would abide by what I told him to do. He agreed, but as soon as I said "Paper Trade," I think I lost him. Within two more weeks he was gone. I believe he is currently saving up for another go at it.

Much is written about "Skin in the Game" and "No Emotions" (which, if you think about it, both have some merit). So what do you do? You want to trade options. You want to be here next month. You want to learn a new strategy for trading the markets, but yet, you are sooooooo new to this. How do you get started?

The last quarter of 2008, I made approximately $75,000 trading options with a $5000 start. WHOAHHHHH who da man! Wait not so fast! The end of 1st quarter of 2009, I gave back that $75,000 plus another $10,000 for a total miss of $85,000 for the first quarter. And to make matters worse, my taxes were due and it took me 2 years to get out of that mess.

How do you get out of a cave? Just get with someone that is familiar with that cave and that I AM!

While many chartists, gurus, teachers and experts will gladly pride themselves on how good they are, there are a few of us out there who will wear our mistakes like a badge of honor. I will gladly carry that message forward so you don’t have to make those same mistakes! So who is looking out for your best interest? That Guru? That twit looking for attaboys? That special 3 piece suit guy who is going to send you 3 plays a week into your email box for the special price of $279/month? Doubtful on all accounts. But, we will!

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Getting Started With Options

Getting Started With Options? Here's How!

If YOU are a new trader, this is what you need to do to get started Today:

  1. Study, Study, Study: Go to CBOE Options Education Center or Investipedia OR Investipedia Options University and start studying the tutorials. You will need to log in with a signon at CBOE although it is free. Investopedia tutorials are completely free with NO sign on required.
  2. Memorize Basic Terminology: Bookmark and start learning these Options Terms. You will want to save this link as a great "dictionary" for options trading. Obviously you wont need 90% of this, but its there if you ever need to look up a definition. We STRONGLY suggest that you take a full week to learn the terms and nomenclature of Options trading.
  3. Sign Up for Level 1 and Level 2: With your existing broker, sign up for level 1 and level 2 Options Trading. At this point this is ALL you need! If you have an Ameritrade account, you can get TOS for free. TOS is a one stop site for ANYTHING pertaining to options, however because of that it can be a bandwidth killer and is slow and cumbersome at times. Diamond Members of OM, we have three separate TOS videos available under the Diamond Training Video Library.
  4. Look for a Virtual or PaperTrading Options Site: We highly recommend OptionsHouse.com or ThinkOrSwim. If you have an Ameritrade account, you can get TOS for free. TOS is a one stop site for ANYTHING pertaining to options, however because of that it can be a bandwidth killer and is slow and cumbersome at times.
  5. Start Small: We highly recommend that you begin trading options with a small CASH account of $1000-$1500 dollars. If you use your existing brokerage account and that account is a margin account (Under $25,000) you WILL be hit with the Pattern Day Trader (PDT) Rule so just DONT DO IT. EITHER change your account to a CASH account OR open up another brokerage account with an Options broker and channel $1000 into the new account.
  6. Once you have done all the above you are now ready to begin Paper Trading which we will discuss in the next chapter!

As you can see, getting started with options requires a little effort on your part. But the potential reward is well worth your time and effort!