I was recently asked about options analysis software. One of our members sent an e-mail to me, explaining that he had just completed a trial of OptionVue but could not afford to buy the software at this time. He also explained that he had a limited understanding of option pricing and “the greeks,” but that he wanted to trade options to generate a 1.5% to 2% monthly income and would like my suggestion on what options analysis software he could use to “model” his positions.
This is the sort of question I receive on a sufficiently frequent basis that I decided to blog publicly about it.
First off, OptionVue has been around for many years and does a nice job but it is expensive. There are other analytic programs and services out there, however. For example, another way to go is to open an account with ThinkOrSwim and use their trading platform, which is very good and is essentially free if you have an account with them. Most of us wind up fiddling with a number of different programs until we find the one or two we settle in with. As for me, I have somewhat settled in with both ThinkOrSwim and OptionVue.
As far the ambition of generating a 1.5% to 2% monthly return, I do think it is within the realm of practical possibility. You’re essentially talking about an 18% to 24% annualized yield. To do that consistently is going to take some real work, but I think it is a reasonable goal to set for one’s self.
Here’s the thing, though…
The software isn’t going to get you there. It’s just software. It’s just a tool. I have a hammer. A couple of them in fact. I even have nails. There is no way I’m going to be able to build a home for myself. At least not one that I would want to live in and definitely not over this weekend or even next weekend. There is a lot I would need to first learn and I would want to gain some construction experience before trying.
Worrying about what options analysis software you are using is like me worrying about which hammer to buy. Sure, you want a good tool but what is really going to determine whether you achieve your goal is a combination of your knowledge, your discipline, and your experience.
Learn how options work, how they can be used in various strategies, etc. Develop a disciplined approach to analyzing the market, researching and planning trades, and executing on a well thought out trading plan. Gain experience by first paper trading or back-testing to test your theories and develop some “virtual” experience. Transition to trading a small amount of capital, using 1 or 2 contract positions simply with the goal of gaining experiencing.
Can you break even trading that small account? If not, don’t increase your size because you’ll only manage to create larger losses where you now have small losses. There is nothing about trading a big account that makes the trading easier.
If you can break-even in a small account you can then consider increasing the size a little and stay there until you can get and remain profitable. Continue the process of gradually increasing your capital until at “full size,” but with the understanding that if you start losing money you immediately scale back. A tedious process, yes. Nonetheless, a far superior route than putting all your capital at risk and watching it swiftly disappear.
Should you commit yourself to acquiring the necessary knowledge and developing an options trading skill set in such a fashion you’ll find that the software is of secondary importance. Sure, having good tools available is a good thing but do not fool yourself into believing that they will make you profitable. Only you can accomplish that.
So, which options analysis software is best? That is largely a matter of opinion, but what I do know is that no software program will improve your trading results without you first making an investment in yourself.
Christopher Smith
TheOptionClub.ccom
Chris,
I could not agree more.
Practice, learn, practice some more. The software is not going to make good trade decisions for anyone.
Pay special attention to managing risk and the trader has a chance to succeed. A chance. No one gives away free money to traders.
Good article.
There is something to be said for having some type of software to help with position analysis when you’re getting started. I came across optionsoracle when I was getting established and it helped me a lot in understanding the positions, being able to model and search for scenarios and providing easy ways to see portfolio theta and other nice conveniences.
I use OptionVue 6 and have zero(!) complaints. As far as price goes…you get what you pay for and OptionVue, in my opinion, is the best. ThinkorSwim is fine for the newbie – but I require in-depth analysis and a lot of support.