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Options 101: Starting an Investment Club


Eight essential topics for discussion.


Are you the type of person who prefers to learn something in a group environment, rather than by yourself? If so, may I suggest you find a few friends, coworkers or family members, and make it a goal to learn to use options? You never know who's interested in learning new investment techniques until you ask.

One enjoyable way to learn together is to form an investment club. If you have the patience to refrain from investing real money before you're ready, you can hold meetings (weekly ones are recommended) at which each member discusses a topic that he/she studied (books or Internet) since the last meeting. You may also want to post a question or comment here. You should open a paper-trading account with your broker and practice one or 2 option strategies and discuss each position whenever you meet. Each member (or team of members, working together) can "own" one specific position and manage it (in the practice account), as necessary. At the meeting, discuss:

  • Why the position was initiated.

  • Why this specific stock or index was chosen.

  • Include profit potential and risk.

  • Is this a market-neutral strategy, or are you planning to benefit from a bullish or bearish move?

  • Were any trades made since the position was opened?

  • Did you close the position to take your profits or to take a loss and eliminate further risk?

  • Was the position modified (adjusted)? Why? This is a learning process and this type of discussion is very helpful.

  • Are you ready to add another position to your practice portfolio? Do that only if you have meeting time for a thorough discussion.

If you don't have more than 2 or 3 positions to discuss, each can get a thorough airing. The purpose isn't to make money from these trades (yet), but to learn how to adopt and manage a specific strategy. This is an excellent method for getting a good options background. You have hands-on practice, you get to discuss the trades within your group, and you use fake money. It's a fun way to learn - if you have people who are really interested in learning. If these meetings become social gatherings, it won't work. This isn't your traditional buy-and-hold investment club.

Not every member may be able to contribute as much time as others. Those with full-time jobs can only spend evening hours on their individual education, and probably cannot be as active a member of one of the teams that manages a position. But those club members can examine a position at night and suggest a trade to the rest of the team - a trade that could be entered the following morning. You can make this work, no matter whether you're retired with lots of spare time, someone who works at home who can grab a few minutes here and there to watch his/her position, or someone who's too busy to get involved during market hours. The most important qualification to join this investment club is the desire to learn about options.

As you try different strategies, you will discover which feel most comfortable for your group. You may prefer very conservative methods where preserving capital comes first. Most investors are interested in making money, and you want to find a method that's profitable -- and comfortable -- at the same time. That's not difficult.

If you're already a member of an investment club, speak to the other members about learning to use conservative options strategies to enhance your club's performance. Come to the meeting prepared to discuss one strategy, or bring along a copy of today's blog.
If you open such a club, consider posting that news and an occasional progress report.

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No positions in stocks mentioned.

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