Learning to Trade Options

Learning to Trade Options 

at the Online Trading Academy

Eric Paul Nolte

I have been going full bore with another project that has captured me: taking classes on how to trade various financial assets at the Online Trading Academy (OTA).

Three weeks ago I ran another lap through a course on trading options up at the Phoenix office of OTA.  Despite the word "online" in their name, they have 50 brick-and-mortar campuses in seven countries around the world where they give classroom instruction.  

This is astonishing and wonderful material that they teach!  The classes are not cheap, but they are a damn sight cheaper than college.  Moreover, having paid for any one course, you can take and re-take these courses as many times as you want, so long as there is space available, and for me, as for most students, there has always been space available.  

Imagine going back to your old college and saying, "You remember that calculus class I struggled with like a mouse wrestling with a boa constrictor?  Do you think I could re-take it and see if I can understand it now?  I'd really love to understand calculus better!"

Right.  Well at Online Trading Academy, this is exactly how they operate.

Moreover, the company works hard to create a nurturing atmosphere for their students.  The material is hard, the courses are dense, so the company goes to great lengths to make their instructors and staff available to the students' every question.  And even more-- there are mountains of help available online in the form of hundreds of courses, videos, papers, and actual people who are there to help us out.  Every question I have had, no matter how stupid I may feel it to be, is answered patiently and respectfully. 

Most of the classes are five days long.  I've taken six initial classes, retaken all of them at least once, and I've taken the class on how to trade options five times so that I can come better to grasp this most difficult of the courses.  Options trading, as the instructors say, is a business that has more moving parts than a helicopter!  

I started taking classes back in Norwalk, Connecticut two years ago, around the time I retired from United Airlines. 

The classes I've taken include instruction in how to be effective at trading stocks, exchange traded funds, futures on commodities, forex (foreign currency exchange, and finally, as I say, the mother of all things fabulous in the trading world: options!   

OTA's core strategy for trading has actually been patented (you can download the patent for free--it's not a very long essay, and it's available at the US Patent Office's website.  The patent number is 8,650,115.)

One may find their patent illuminating, but I doubt that anybody among us mere mortals can learn how to put this knowledge into practice without taking classes, which I highly recommend.  

I believe that OTA's work is brilliant.  The core strategy allows us to see the footprints of the big institutional traders whose buying and selling of assets are what move markets. 

These footprints of institutional buying and selling show up in areas on the price chart that we can call demand zones and supply zones (akin to the idea of support and resistance.)  These are areas marked by a telltale pattern on the price chart that we learn to identify as a likely holding pen for unfilled buy and sell orders.  When the price moves into one of these well-defined zones, it is the likely point of a price reversal as the result of these unfilled orders getting triggered.  

We see these footprints of the likely buyers and sellers in demand zones or supply zones on a price chart.  This insight gives us the basis of a strategy that allows us to place trades that have a high probability of success.  We always place these trades in the context of a rigorously followed plan of risk management.  We don't place any trades that exceed 2% of the value of our account so that if the trade moves against us, we will have a stop-loss order that will take us out of the trade before we can lose more than a small fraction of the money we have put at risk--a number that is calculated as a fraction of that asset's daily average range of price movement.  Sticking to this policy of risk management, there is no danger that we will ever blow our whole account, as so many hapless traders do!  We never place a trade that does not appear to offer an acceptable profit-to-loss ratio.  We have a rational, tested list of odds enhancers and we have checklists to follow, some of which are applicable to all assets, and some that are specific to the asset class to be traded.  

I believe that our core strategy makes us much like pilots who live or die according to how well we follow the hard-won wisdom that is embodied in our procedures and checklists.  This strategy works.  

Many, perhaps most, college professors will tell you that the efficient market hypothesis means that nobody can have any better idea of where prices will go than predicting a drunk's wallowing down Wall Street, bumping into light fixtures and fire hydrants.  Some of these same professors will also say that technical analysis of price charts is akin to mystics' reading tea leaves in a bowl.  They are mistaken.  

Well, it is true that conventional technical analysis has problems, but our system does not embody the flaws of these conventional analyses.  

Yes, it's true that nobody can be certain where prices will move, but I think the matter may be analogous to the way pilots deal with weather forecasts.  

We use our price charts and our core strategy the way pilots use flight manuals and weather forecasts.  We know that anybody who absolutely trusts a weather forecast is the kind of fool who might think he can buy the Brooklyn Bridge.  But we know that the weather forecasts do tell us generally enough to calculate the fuel load we should carry in order to make allowances for adverse winds aloft and lousy weather at our destination and alternate airports.

Weather reports are flawed, but they are not as unreliable as reading tea leaves in a bowl, and they are crucial to rational flight planning.

As with pilots using weather forecasts, our price charts may not tell us with certainty everything that will happen down the airways.  We cannot know for sure where prices will move, but our core strategy and our list of odds enhancers allow us to position ourselves with a high probability of success, just like a pilot's use of weather forecasts, and to position ourselves against many of the adverse forces that can shoot down our trades.     

*   *   *

Before I close, I want to offer some thoughts on how this kind of work, the trading I'm learning how to do, is deeply misunderstood and therefore vilified by much of the world.

Many people think that this work in the financial world is meaningless paper shuffling by predators in business suits who steal other people's money in a way that is barely a millimeter away from being outright criminal.  We are thought of with the kind of derision that is reserved for the likes of Shylock, in Shakespeare's The Merchant of Venice, or Gordon Gecko, in Oliver Stone's movie, Wall Street.  

I utterly reject this idea of finance.  I believe this derision can only be held by the hapless who are ignorant of the actual role that finance plays in the world.  

Finance is crucial to directing the flow of capital into those ventures that stand the best chance of producing goods and services that lift our lives to the most wonderful heights that the world has ever seen!  We live at the most abundant and fruitful time since Homo saps first emerged from the caves and began to create the civilized world with agriculture and everything else we have come to enjoy.  

Think of your iPhone or your automobile, or the airplanes that bring us all together!  Think of the advanced medicine and foods that have in just the last two centuries doubled and then tripled our life expectancy and given us the astonishing quality of our lives, compared to any time or place before ours!  

None of these improvements would have been possible on a global scale if it weren't for the miracle of high finance and the way it effectively directs venture capital.  Moreover, profit-seeking speculation considerably softens the severity of blows to the financial system that result from wrenching political events and the forces of Nature. 

There is a river of money out there, and I am wading in the shallows, learning how to ladle some of this heart-warming profit my way.

E   P   N

2019.0208
revised 2020.0813

word count 

c. 1,470