Book Review: Understanding Options, 2nd Edition

Michael Sincere, a full-time writer with several investing and trading books to his credit, has updated and expanded Understanding Options, originally published in 2006 (McGraw-Hill). Its intended audience is the novice, although for this second edition he went beyond the basics, including a section on intermediate and advanced strategies and an interview with Sheldon Natenberg.

Sincere works hard to make options accessible and “entertaining.” In introducing the concept of an option he gives not only the standard example of an option on a house but adds the case of buying options on snow shovels. (Admittedly, as I'm writing the draft of this review I can’t consider anything having to do with snow shovels even remotely entertaining, but some day it will warm up, my endlessly long, steep driveway that I spent two days hand shoveling and that is now a treacherous sheet of ice will clear, and the oil truck will be able to come down since I suspect I’m currently heating the house on fumes. [Update for those who feared that some poor soul would find me frozen solid with a book clutched in my hands: Success!])

Sincere starts with five chapters on selling covered calls and continues with six chapters on buying calls and four on buying puts. He clearly explains issues that tend to trip up beginning option traders, such as exercise and assignment.

The intermediate and advanced section of the book is rather sketchy. In about eighty pages he describes credit and debit spreads, buying straddles and strangles, selling cash-secured and naked puts, delta and the other Greeks, advanced strategies (iron condors, calendars, and butterflies), and trading options with ETFs, indexes, weeklys, and mini-options.

The merit of Sincere’s book is that it provides a clear introduction to the mechanics of opening and managing straightforward options positions. This is information that every option trader should understand thoroughly. Understanding Options should not be the last book that he reads, but it’s a good first one.