Interview with Michael Sincere, Author of Understanding Options
Nov 18th, 2009 by Carlos
A few months ago I casually mentioned I was reading Understanding Options, a great introduction to the world of options trading. A few weeks later, Michael Sincere—the author, left a comment on that post thanking me for the kind words (it’s a great book).
So I got in touch with him and he graciously agreed to let me interview him via email. Before we get to that, I want to say one thing to people that are scared/skeptical of learning more about options: they are not as complicated as you think.
You still have to have an idea of what you think a stock is going to do, but options give you the flexibility of playing that idea in a variety of different ways.
On to the interview:
How useful do you think technical analysis can be for the beginning options investor?
The beginning options investors, after reading my book, will realize the importance of the underlying stock when deciding when or if to buy or sell options. Therefore, technical analysis is extremely important, but not mandatory. That is how the options trader will determine the timing and direction of the underling stock. Learning technical analysis and how to read charts is essential whether investing or trading stocks or options. It is another piece of the puzzle called the stock market.
If there’s one thing you would like readers to take away from your book, what would it be?
How about two things? First, the advice given to me by some of the top traders, and I agree, is to start small. Begin by only trading one or two contracts when first starting. And you should do this for as long as it takes until you gain experience and confidence. I’ve talked to professional options trainers who don’t let their students make a trade for the first year! The second piece of advice readers should take away from my book is to quickly take money off the table. With stocks, you have the luxury of time. With options, you don’t. When the call or put price spikes up, take the money and run.
What was the toughest part of writing the book?
The toughest part of writing the book was making sure that all of the information was correct. Options have their own particular language and there are many exceptions to the rules. So after the book was written, I gave it to a couple of true options experts who went over the book in painstaking detail. I quickly learned why options have a reputation for being “rocket science.” I had to take what the experts told me and decipher it so the novice options trader could understand it. Believe me, that wasn’t easy!
How do options fit into the current market climate?
Options fit in every market environment. But right now, if we can get through September and October, it’s possible the market will go much higher, especially as the stimulus works its way through the economy. Others, however, might disagree. Therefore, you can buy calls or puts depending on your view. The beauty of options is you can make this play without risking a lot of capital. On the other hand, because it’s not easy to get the timing and direction right, many people end up with a handful of worthless options. So although risk is limited, you can lose your entire investment. This is why it’s essential you read as much as you can about options before trading
them.
What type of person do you think should consider learning about options?
Personally, I believe everyone should learn about options, assuming they have the time to devote to learning how to use them properly. After reading a book like mine, or others, you can determine if options are for you. Anyone who is actively involved in the stock market, whether conservative or aggressive, can find a way to use options, especially to reduce risk. But if you are not an active investor or trader, then you don’t need to trade options, but you can learn about them.
I just read Understanding Options, which book would you recommend to continue my options education?
The book that I would recommend is Mark Wolfinger’s book, The Rookie’s Guide to Options (WA Publishing, 2008). My book is ideal for someone who has little or no knowledge of options. His book should be next. He also has an excellent blog aimed at options traders, . In addition, be sure to check out the website for the OIC (Options Industry Council). This site if filled with useful information.
Anything else you’d like to add?
I am sometimes amazed that people all over the world write me with questions about options. Many people think that options are confusing and risky, but the more you read about them, the more you realize they are not dangerous — as long as you use them properly. Options got a bad name because gamblers bet their entire portfolios on a single trade — not a smart move! But when options are used to enhance a stock portfolio or for insurance, they really are brilliant. The best part about trading options is you know the maximum loss before you make the trade. Many people don’t know that. Finally, thanks for the interview and I’m really glad you enjoyed my book.
One Last Thing
Just want to add one thing that I took away from this book to anyone that’s interested in options: make sure you have a plan. This book drills it into you time and time again, and it makes complete sense. Don’t just make a trade and cross your fingers, have a detailed plan of what you’ll do if you’re right and what you’ll do if you’re wrong.
Hope is not a plan—not in the world of stock and options, anyway.
[...] made my very first options trade last week, and I’m damn proud of it. I studied options for months (the book, Understanding Options, was invaluable—do check it out if you want to learn [...]