The best options trading books cover a wide array of topics, from beginner trading all the way up to specific options strategies that options traders can deploy to improve their trading experience. Here’s our take on the best option trading books, in no particular order.
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For Understanding the Basics of Options:
Trading Options For Dummies, Dr. Joe Duarte, Optionetics
When it comes to breaking down tough concepts into bite-sized pieces with “explain it like I’m 5” style language, readers can look no further than the famous “For Dummies” brand. With books on everything from playing guitar to learning a language to flirting with the opposite sex, “For Dummies” is well-known for leaving no stone left unturned when covering daunting topics. Options trading is no exception.
Written by Dr. Joe Duarte (a market analyst, trader, investor, money manager, and one of CNBC’s original “market mavens”), Trading Options for Dummies is a one-stop shop for traders who are brand new to the concept of option trading. That means traders with at least an intermediate level of familiarity will be best served skipping this particular book and moving lower on the list.
However, for new traders, this guide will be an excellent reference tool throughout the early stages of your trading journey. Trading Options for Dummies is the best option trading book for traders who are just starting out, interested in options trading, and looking for a no-nonsense, easy to follow handbook on the subject.
While Trading Options for Dummies is an excellent title for understanding the basics of how options work, traders looking for a more in depth look at why options work might enjoy the next title.
For Understanding the Options Greeks:
Trading Options Greeks, Dan Passarelli, William J. Brodsky, Bloomberg
Trading Options Greeks, sponsored by Bloomberg, written by Dan Passarelli (a former Chicago Board Options Exchange floor trader) and William J. Brodsky (an executive chairman of the same Chicago Board Options Exchange) identifies an often overlooked, key piece of options trading: The Option Greeks.
The first half of the book focuses on defining, identifying, and understanding each of the option Greeks: Delta, Gamma, Theta, Vega, and Rho. The second half focuses on strategies built around the Greeks, and how to exploit those Greeks to enhance your options trading.
For instance, understanding the difference between a theta positive and a theta negative strategy, and when each of those could be best deployed. Or, understanding how to analyze delta and gamma to select higher probability options contracts.
Trading Options Greeks by Dan Passarelli and William J. Brodsky is the best options trading book for traders looking to not only understand what the options Greeks are — but also how to use them to your advantage.
Speaking of options Greeks, the following book in our list gets deeper into a specific set of strategies options traders can use to exploit one of the most important Greeks: theta.
For Understanding Theta Decay Strategies:
The 3 Best Options Strategies for Beginners: The Ultimate Guide to Making Extra Income on the Side by Trading Covered Calls, Credit Spreads, and Iron Condors, by Freeman Publications
The 3 Best Options Strategies for Beginners: The Ultimate Guide to Making Extra Income on the Side by Trading Covered Calls, Credit Spreads & Iron Condors is a mouthful, and there’s a reason for that. This collection is actually three of Amazon’s best selling books, packaged into one — and this package in and of itself is also a best seller.
Each of the books bill the collective strategies that they’re teaching as a method of taking in “extra income” — and while that is most certainly an earnings claim, which the author cannot guarantee, the strategies they’re talking about hold some weight.
Iron condors, covered calls, and credit spreads are all short option strategies that take advantage of the options greeks discussed in the book above. The description of the book on covered calls reads,
“A risk free way to collect ‘rental income’ every month on stocks you already own”
And while the phrase “risk free” is dubious here, the author is getting somewhere — covered calls involve selling options against stocks you already own.
Credit spreads (another strategy discussed in the trilogy above) are similar to covered calls — rather than selling options against shares, you’re selling options against other options. Iron condors take it a step further — fusing two credit spreads together to “collect premium” and take advantage of theta on both sides of the spectrum.
In any case, this is a cursory glance at three key option strategies that options traders must know — three strategies that are covered in depth in this collection by Freeman Publications.
But premium collection isn’t the only strategy that option traders should be aware of…
For Understanding Technical Analysis Strategies:
Mean Reversion Trading, Using Options Spreads and Technical Analysis, by Nishant Pant
Nishant Pant is a known entrepreneur, software developer, and options trader. Don’t let Pant’s jack-of-all-trades resume fool you — Nishant comes with decades of options trading experience under his belt.
In this #25 best selling options book, Pant covers a strategy that has grown considerably in its popularity in recent years: technical analysis. According to Pant, here are a few of the pieces covered in this popular book (the following is a quote from Mean Reversion Trading, Using Options Spreads and Technical Analysis’ Amazon page)::
- Rules for entering trades, exiting profitable trades, stop losses, trade management, portfolio allocation and risk management.
- How to find the right stocks to trade options.
- How to handle market corrections and crashes
- Techniques to participate in earnings while avoiding the binary outcome of these events
- Spotting the right trading opportunities using Technical Analysis
- A simple strategy that keeps doubling your money over and over again
- Live Trade examples elaborating all the concepts in this book
- Special note on the Market Crash of 2022
While some phrases here, like “that keeps doubling your money over and over again” are yet again, dubious, the fact remains: There is excellent data found within this book about hunting for technical analysis driven breakouts and breakdowns, and using options spreads to capitalize on them.
For traders looking for a powerful, simpler, and completely different approach, there’s one more option trading strategy that is completely unique from these…
For Understanding Unusual Options Activity and Order Flow:
Follow The Smart Money, Jon & Pete Najarian
Written by former NFL ballers-turned-professional options traders, Follow the Smart Money takes a completely different approach from the other books on this list. Rather than using technical analysis to hunt down trade ideas, or attempting to collect premium on out-of-the-money options, Follow the Smart Money attempts to ride the coattails of the Wall Street Elite via unusual options activity.
What Is Unusual Option Activity?
You can think of Unusual Option Activity as the breadcrumbs left behind by the “smart money” — hedge funds and institutional traders. By utilizing teams of researchers, sophisticated algorithms, and immense warchests, the “smart money” has an uncanny ability to stay one step ahead of the market… an ability that they leverage through the power of options.
The trades they make remain hidden under the surface of the market, buried beneath a sea of option order flow — unless you know what to look for. Things like:
- Trade volume that greatly exceeds open interest
- Trades that risk a substantial amount of capital
- Trades that require large market moves in a short period of time
When all three of the above conditions are true at once, it’s worth paying attention. But when multiple, repeated trades like these pop up over and over again in the same underlying stock, that’s unusual option activity.
Jon and Pete Najarian go deep into the methodology they use to not only discover these trades, but to perfect them, and also their risk calculation for entry and exit.
The Bottom Line: Options trading is a complex rabbit hole, with thousands of viable strategies. But by reading each of the books on this list, all crafted by masters of the options trading world, you can be well on your way to mastering some of the most popular options trading methodologies.