What is the best book to use in understanding stock option pricing?
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For you to understand option pricing at more than a superficial level you will need a certain mathematical level.  Ideally you will have had calculus and will understand the basics of differential equations and how to solve them.\n\nAssuming this, there is a very good book by John Hull which is called "Options, Futures and Other Derivatives" which is very expensive new but which you can get used for probably $60 used.  It will be worth the money.\n\nThis is the only options book I ever read (an earlier edition) and I have been trading derivatives since the early 1990s.
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The source is an excellent intro to financial terms, especially the "dictionary" which covers acronyms and phrases.\n\nOff the top of my head:\n\n1. Time value recognizes that value changes with time.  A stock option (to buy or sell stock at a fixed price) is a wasting asset that may be worth less and less as the option date approaches and worth nothing if not exercised.  A contract to erect a building three years from now must recognize that the cost of materials and labor may change by then.\n\n2.  In financial, "discount" can mean that something has been taken into consideration.  The price of a stock today discounted the fact that earnings are expected to double by next year.\n\n3.  As a mortgage is paid off monthly at a fixed amount per month, the debt remaining is less with each payment reducing the interest (but not the interest rate) and more and more of the payments will go to reducing debt as the mortgage is amortized, reduced to zero over time.\n\n4.  Compounding means that if you receive interest on a bank savings account, you also receive interest on any previous interest received and kept in the account.  Compounding may be calculated daily on the account balance (interest posted) or perhaps semi-annually or annually depending on your agreement with the bank.  By extension, If the value of stocks in your IRA increase 10% per year, the value of the investment compounds (Take say $10,000 and multiply it by 0.10 for each year up to your retirement (and it continues to compound as you take out money during retirement).  This is the hidden value in SS personal savings accounts.\n\n5.  Net Present Value relates future value with the present value.  If you invest in IT (information technology) today, what will its future value be to your company, etc.?
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Employee stock option plan (ESOP)\n\nWill very by company
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Buy a call when you are expecting a stock to go up.  A call is an option to buy.\n\nBuy a put when you expect the stock to go down.  A put is an option to sell.\n\nThe strike price determines the 'sales price'\n\nIf you expect goog to bounce, you would by a call for Dec, Jan, Feb, whenever for a strike price of 500.  Dec call would cost you $8 per share (you need to buy in contracts consisting of 100 shares to trade options).  If goog goes past $508 in a true options trade, you profit every cent after that.  You could essentially trade the option when it got close to 500 if there was enough time for the option to have value.\n\nIf you are expecting goog to continue the downward trend, you would buy a put.  The $480 strike for goog Dec option is trading at $7.40.  You essentially have the option to sell goog at $480, so if goog goes down past 472.60 you make money for every cent after that.  Also with the call option, you could just sell your option with more value if the stock starts going down and you still have the intrinsic (time sensitive) value left on the option.\n\nGood luck.
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here you go...\nhttp://www.stock-trading-advice.com/stock-trading-software.html
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Here's a few names to check out in Amazon:\n Achelis, Steven B.  Technical Analysis from A to Z.  Chicago, IL:  Probus Publishing Company, 1995.\nWritten by the president and founder of Equis International.  This book contains an introduction to technical analysis, plus a complete reference to over 100 indicators and studies.\nAppel, Gerald and Hitschler, Fred.  Stock Market Trading Systems.  Homewood, IL:  Dow Jones-Irwin, 1980.\nTakes a thorough look at moving average trading systems, timing market cycles, the 12-day Rate-Of-Change, etc.\nAppel, Gerald.  The Moving Average Convergence-Divergence Method.  Great Neck, NY:  Signalert, 1979.\nThe MACD from its creator.\nArms, Richard W., Jr.  Volume Cycles in the Stock Market.  Salt Lake City, UT:  Equis International, Inc., 1994.\nThoroughly explains the Equivolume charting method, volume cycles, and the ease of movement indicator.\nBookstaber, Richard.  The Complete Investment Book.  Glenview, Illinois:  Scott, Foresman and Company, 1985.\nExplains the Black/Scholes option calculations used in MetaStock.\nChande, Tushar S and Stanley Kroll.  The New Technical Trader. New York:  Wiley, 1994.\nA book describing a new statistically- based breed of price-based, and risk control indicators.\nCohen, A.W.  How To Use The Three-Point Reversal Method of Point & Figure Stock Market Trading.  Larchmont, NU:  Chartcraft, 1984.\nA detailed book on point & figure chart interpretation.\nDobson, Edward D.  Understanding Fibonacci Numbers.  Greenville, SC:  Traders Press, 1984.\nA brief overview of Fibonacci numbers.  Contains an extensive bibliography.\nEdwards, Robert D. and Magee, John.  Technical Analysis of Stock Trends.  Sixth  Edition.  Boston, MA:  John Magee, Inc., 1992. (Distributed by New York Institute of Finance.)\nExplains trendlines and chart patterns.\nEng, William F.  The Technical Analysis of Stocks, Options, & Futures.  Chicago, IL:  Probus Publishing,1988.\nGranville, Joseph E.  New Strategy of Daily Stock Market Timing for Maximum Profit.  Englewood Cliffs, NJ:  Prentice-Hall, 1976.\nA book from the inventor of On Balance Volume.  Mr. Granville has earned a bearish reputation, but his technical tools remain valid.\nKaufman, Perry J.  Commodity Trading Systems and Methods.  New York:  Wiley, 1978.\nA serious book for the serious technician.  While not required, a strong background in mathematics is helpful when reading this book.\nLebeau, Charles, and David Lucas.  Technical Trader's Guide to Computer Analysis of the Futures Market.  Homewood, IL:  Business One Irwin, 1991.\nAn excellent book that shows the historical performance of popular technical indicators and oscillators.  \nLeibovit, Mark A.  Using the Volume Reversal Survey in Market Analysis (520-282-1275).\nThis pamphlet provides information on some of the pattern finding functions in the MetaStock formula language (i.e.,  Inside, Outside, Rally, and Reaction).\nMerrill, Arthur A.  Filtered Waves-Basic Theory.  Chappaqua, NY:  The Analysis Press, 1977.\nThis is an entire book about the Zig Zag indicator.  It is available from:\nTechnical Trends\nJohn R. McGinley, Jr.\nP.O. Box 792\nWilton, CT  06897\nMurphy, John J.  Technical Analysis of the Futures Markets.  New York, NY:  New York Institute of Finance, 1986.\nOne of the best single sources of information on technical analysis.  You don't have to trade commodities for this book to be valuable.\nNatenberg, Sheldon.  Option Volatility and Pricing Strategies.  Chicago, IL:  Probus Publishing Company, 1988.\nExplains the Black/Scholes option calculations used in MetaStock.\nNison, Steven.  Japanese Candlestick Charting Techniques.  New York, NY:  New York Institute of Finance, 1991.\nExplains how to use and interpret Candlestick charts.\nNison, Steven.  Beyond Candlesticks.  New York, NY:  Wiley, 1994.\nExplains how to use and interpret Kagi, Renko, and Three Line Break charts.\nRaff, Gilbert.  Trading the Regression Channel.  Salt Lake City, UT.  Equis
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Real options capture the value of managerial flexibility to adapt decisions in response to unexpected market developments. Companies create shareholder value by identifying, managing and exercising real options associated with their investment portfolio. The real options method applies financial options theory to quantify the value of management flexibility in a world of uncertainty. If used as a conceptual tool, it allows management to characterize and communicate the strategic value of an investment project. Traditional methods (e.g. net present value) fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. The real options method represents the new state-of-the-art technique for the valuation and management of strategic investments. The real option method enables corporate decision-makers to leverage uncertainty and limit downside risk.
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Before you trade stock options you need to be a proven money maker in the stock market. Unless you can anticipate stock movements, you have no chance trading stock options.\n\nThe way I trade stocks, I cut my losses short at about 7% Several years ago I decided to take that 7% and put it in call options 3 to 6 months out instead of 100% in shares. \n\nYour risk is clearly defined, and you are offered some protection from events such as market closures or gap downs.\n\nI would never risk more than 1% of my entire portfolio on an option position.\n\nSpreads, straddles, and the ability to hedge are other benefits of options. Only trade stock options if you are an accomplished stock trader. You could lose alot of money.\n\nWriting options is statistically a losing proposition in the long run. The risk / reward is clearly unfavorable.
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4 technical analysis of stock/commodity with buy sell signal\n\naptistock freeware is best\n\ndetails in my other answers
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1) Go to your local library and borrow a basic "investing" book.\n2) For practice, go to www.finance.yahoo.com/\n3)  Enter common symbols such as GM (General Motors), GE (General Electric)\n4) Examine various numbers, as defined in your book\n5)  Also use <HELP> on that page.  Good Luck
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http://www.magicformulainvesting.com\n\nIt's a great book! Make sure you buy the book and read it or buy the audio book and listen. The wisdom of how the value investing method works is great info.
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An answer would take volumes to provide, so let me suggest some literature: \n\nI would recommend William O'Neil's "The Successful Investor" as a good starting point. Follow that up with Peter Lynch's "Beating the Street". That should provide you with two strategies that you can learn from in building your own investment strategy.\n\nOther good books include "The Motley Fool Investment Guide" by Tom and Dave Gardner or "Real Money" by James Cramer.\n\nI have read all the books above and devised a strategy that adopts a bit from each one. \n\nAnother thing you can do is invest using a fictional portfolio. Let that run for a few months to see if you are ready to take on wall street. In the meantime, let a professional look after your money (ie, mutual funds). Once you are ready, sell the fund and invest on your own.\n\nRemember, the time spend learning about investing is far less then the money lost by not being prepared.\n\nGood luck.
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Black-Scholes theory is the theory underlying financial derivatives which involves stochastic calculus and assumes an uncorrelated log normal distribution of continuously varying prices. A simplified "binomial" version of the theory was subsequently developed by Sharpe et al. (1995) and Cox et al. (1979). It reproduces many results of the full-blown theory, and allows approximation of options for which analytic solutions are not known.\n\nMonteCarlo method: Any method which solves a problem by generating suitable random numbers and observing that fraction of the numbers obeying some property or properties. The method is useful for obtaining numerical solutions to problems which are too complicated to solve analytically. It was named by S. Ulam, who in 1946 became the first mathematician to dignify this approach with a name, in honor of a relative having a propensity to gamble. Nicolas Metropolis  also made important contributions to the development of such methods.\nThe most common application of the Monte Carlo method is Monte Carlo integration. \n\nMonte carlo integration: In order to integrate a function over a complicated domain D, Monte Carlo integration picks random points over some simple domain D^' which is a superset of D, checks whether each point is within D, and estimates the area of D (volume, n-dimensional content, etc.) as the area of D^' multiplied by the fraction of points falling within D. Monte Carlo integration is implemented in Mathematica  as NIntegrate[f, ..., Method->MonteCarlo].\n\ns
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Encyclopedia of Chart Patterns\nby Thomas Bulkowski\n\nMost books identify the patterns but don't give you any hard and tried facts on how to trade them, but this one does. It probably contains the most "research" on patterns of any other book you'll find. \n\nBut the problem you're going to run into is that by the time most patterns are recognizable, the trade is almost gone. Trade the rules first, patterns second.\n\nJake Bernstein's earlier books are almost a Bible of Technical Analysis. Almost any book by Jake is good.\n\nNo actually, the Bible of Technical Analysis is:\nTech. Anal. Of Stock Trends, by Edwards & McGee\n\nTake a look at a different kind of grouping of patterns:\nMarket Analysis for the New Millennium, by Robert Prechter. Not only is Prechter a good trader with lots of experience, he's also a profound writer.
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That's the definition.. but this is how they work:\n\nCall options: buy if you expect a stock to go up.\nPut options: buy if you expect a stock to go down.\n\nOptions were intended at first as insurance, you would buy option 'contracts' at a certain 'strike price' that would let you to buy 100 shares per contract at the specified strike price, regardless of whatever the stock was trading at. \n\nHowever, many people realized you can make A LOT of money by buying and selling the option contracts themselves. You can also lose everything. They have higher spreads (usually minimum of $0.10), and a lot more volatile since they're cheap. Use at your own discretion.
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TD Ameritrade is the best. I have used for years. The interface are trader friendly and portfolio information are shown in details. I buy penny stocks so the $9.99 fixed commission for unlimited shares is good for me. No maintenance fees.\n\nIf you are going to buy penny stocks, you need to be careful about the commission. Search the fine prints.\n\nFor Scottrade, see fine prints: "For stocks priced under $1, add 1/2% of the principal value to the commissions shown. " You will end up to pay more than $7.\n\nEtrade recently reduced the commission with fixed commission for unlimted shares so it is good for penny stock traders too. But I don't like portfolio web page because it is very confusing and do not show all the information I want to see.
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If you're willing to accept the risk of losing it all, buy a call or a put option that's just out of the money.  In other words, pick a publicly traded company (with a lot of volume) that you feel strongly about.  You can make a lot of money quickly if you think the stock will rise or fall and you pick it correctly.  For example, say you think that you have a strong opinion on Microsoft (MSFT), here's what you do:\n\nThe stock is currently trading at $28.77\n\nIf you think it will go up, buy a CALL option, which gives you the right (but not the obligation) to buy MSFT a higher price.  For example, you can currently get a DEC 30 Call on MSFT for .20 per share on a contract (of 100 shares).  \n\nhttp://finance.yahoo.com/q?s=MSQLK.X\n\nSay you buy 5 contracts and the stock goes up to $32 before Dec., you can either sell to close your option for the going price or exercise it at $30 and make $2 per share.  Here's what you would net:\n\nPurchased 5 contract ($.20 * 100 * 5) plus say $15 commission = $115\n\nExercised ($30 * 5 * 100) = $15,000\n\nSold ($32 * 5 * 100) + $15 commission = $15,985\n\nMade $15,985 - $15,000 - $115 = $870 profit on $115 or 405% return.\n\nTruth be told you'd probably just sell the option, but the profit would be about the same.  If you think MSFT will go down, just do the same thing with a PUT option.  That said, if you guess wrong you could lose your initial $115 and if it doesn't move much you could lose most (or all of your money).