I would like to start options trading I have some experience in Investing and stock trading but I have never has experienced with options trading. Would like to know how can one begin with options trading and what are the main points to keep in mind before starting out?
Broadly options trading strategy consists of two parts e.i. Naked Options Trading and Hedged Options Trading.
Always start with hedged options trading the probability of making money in options trading with hedged options trading is much higher when compared to the naked options trading.
The associated risk with the naked options trading is much higher, even though the concept of unlimited profit and limited loss bring most people to options trading but the fact of the matter is that even that can cause a dent in your trading profits.
Most important when you are dealing with derivatives for the first time you should start of with paper trading. It is tough to paper trade stock options without a proper system. You can have a look at the below link which will give you a right idea about tools one can use to paper trade.
Rest the more you practice with paper trading and hedged strategy you will be able to acheive expected returns in the stock market through options trading.
The only two tools that you would require apart from books and this forum for options trading is mentioned below.
While I started out with options trading I was finding it very tough to manage the positions profit and loss value and overall strategy performance. I used to maintain an excel and on the whole, it would limit my calculation process and real-time valuation. I was also unable to calculate greeks for the options strategy. For which I would suggest you use the website http://optionstracker.net/ very user-friendly and has lots of features. This is also very useful for paper trading as mentioned by @rakesh.
Next most important aspect is to have a hedged options trading strategy. Most freshers or newbie options trader make the mistake of not using a hedged options strategy. The naked strategy the risk is too high for the return you can expect from options trading. Once you start using hedged option trading strategy you can take the next step of learning options greeks for which also the optionstracker website will be very useful. Most people when they start learning greek they start with how to calculate the greek values rather than understand how to use the option greeks. The greek can convert even a loss making strategy to profit or breakeven.
I forgot to mention that there is another amazing website which contains all the strategies possible clearly classified for Bullish, Bearish and Neutral.
I personally use this website for reference always since it also tells us the risk on the upside and downside. At the same time gives us an idea for an alternative option strategy possible. Consider going to this website.
Option trading is for high risk individuals. You should not trade in options if your capital is less than Rs. 10 Lakhs. Also you should not be fully dependent on options trading income which is not consistent.