Review of "Scientific Trading Method More Advantageous Than Stocks" and "Super Stock Investment"
Options investing is fun because it allows for infinite combinations.
However, this also means it can be difficult to understand which strategy to take in which situation.
In this article, I will introduce two books that excellently explain such options strategies, which are great for beginners.
By the way, both books have the same author, and the content overlaps considerably.
I read these in 2015, but I had notes left from that time, so I decided to turn them into an article as it would be a waste not to.
Scientific Trading Method More Advantageous Than Stocks
Overall rating: +1 (Recommended)
According to the author's blog post, the dubious title and poor layout are due to the publisher's circumstances.
If you disregard that, the content is easy to understand and practical, making it perfect for beginners.
As there is a lot of overlap with "Super Stock Investment" mentioned later, if you only want to know about options strategies, this book alone should suffice.
Overview
It introduces mainly six types of options-based methods and demonstrates that returns exceeding holding the underlying asset can be obtained.
- Put selling / Cash-secured put (CSP)
- Covered call (CCW)
- Vertical spread
- Butterfly
- Iron condor
- Diagonal spread
Good points
The explanations of strategies using major options and their usage scenarios and examples are included, making it very easy to understand.
The explanations show improvements in Sharpe ratio compared to the underlying asset, among other things, providing sufficient information necessary for beginners.
Moreover, each strategy is explained practically, and exit strategies such as stop-loss criteria are often included.
For example, for bull put spreads, detailed criteria like the following are written:
- Short put at "strike price (K1) that is 0.2 × iv lower than the underlying asset price"
- Long put at "strike price 3% below K1"
- Stop loss when the loss reaches 10% or when it falls 2% below K1
For CCW, it's like this:
- You can increase the profit of covered calls by combining them with bull put spreads
- Especially, "selling 3% OTM calls, selling 3% OTM puts, and buying 6% OTM puts" is easy to manage...
Overall, it is well-summarized with the necessary content as an introductory book.
It has a structure that seems to consolidate the content of the same author's books, "Super Stock Investment" and "Covered Calls for Weekend Investors", and this single volume appears to provide sufficient necessary knowledge.
Bad points
While the content is excellent as an introductory book as mentioned above, there are detracting factors in other aspects.
First and foremost, the vertical writing is extremely painful. Why vertical writing when there are many numbers appearing?
Also, it's unclear what "scientific" refers to. If it refers to researching evidence, etc., it should be possible with stocks as well.
These seem to be due to publisher circumstances, and a part of that anguish is condensed in the author's comment below, so I'll quote it here:
Please understand the bad custom in the publishing industry where, unless you're a very famous person, the publisher decides the book title arbitrarily. This book is not the only one where the title and content diverge. It says "the title of a paper is the most important", but the most important is the content. However, in the case of papers, it's good because you can decide the title yourself.
Summary
Because it's well-organized and easy to read, I think it's a must-read for those interested in options trading.
Also, if you don't understand after reading this, you can use it as a gateway to read "Super Stock Investment" or "Covered Calls for Weekend Investors" mentioned below.
Super Stock Investment
Overall rating: +0 (Recommended for some people)
As it overlaps half with the above "Scientific Trading Method More Advantageous Than (etc.)", it's only recommended for those who need the ETF introduction in the first half.
Overview
It has a two-part structure, with the first half discussing ETF comparisons and the latter half discussing options strategies.
The content of the latter half overlaps with the above "Scientific Trading Method (etc.)".
Good points
To summarize the first half part roughly, it's a recommendation of index investing and an introduction to ETFs.
There are many books of this kind, but this one goes as far as showing stocks and portfolios combining them.
As it's relatively concise, it's recommended for those who have never read about index investing before.
The latter half part is an introduction to options strategies, mainly using easy investment methods with CSP and CCW.
It shows how much return you can actually get using options, allowing you to grasp the overall picture and get an image of the results.
Not so good points
While it's well-organized overall, it can be verbose at times or conversely lack information you want to know.
In the ETF part of the first half, there is a lot of information that I honestly think doesn't need to be included.
It's interesting as reading material though.
In the options part of the latter half, it's not very clear "when" and "with how much risk" you should do it.
Also, if it's an overview of strategies, I thought it would be good to have a table summarizing the pros and cons.
Summary
While it has flaws such as being verbose overall and having unclear conclusions, it's a very good book to actually push you to start index investing and CCW/CSP. Especially for people who don't know much about investment strategies, there should be a lot of eye-opening content.
However, for the latter half part, it's better to read the aforementioned "Scientific Trading Method (etc.)", so it doesn't seem cost-effective.
Recommended to read together
If this book is still complicated, it would be good to read "Covered Calls for Weekend Investors" by the same author. It's more focused and simpler.
I read this book too, but I couldn't find the review even after searching through documents, so there's no article... orz
Other reviews, etc.
It's also reviewed on other blogs, so please refer to them.
- http://blog.livedoor.jp/kappa_ccw/archives/38883538.html
- http://akipop2013.blog.fc2.com/blog-entry-68.html
- http://scientistdiary.blog.fc2.com/blog-entry-37.html
- http://blog.goo.ne.jp/fusiminohikaru/e/322eba079ddd8e3f3ad8ac71ef302140
- http://garboflash.blog.fc2.com/blog-entry-184.html
- http://fairvalueinvestment.blogspot.jp/2014/10/blog-post.html
- http://ishippon.blogspot.jp/2014/05/blog-post_25.html
Grand summary
I introduced two (actually three?) books by Kappa-san.
Options trading may seem complicated, but it can be convenient in many ways if you can use it.
Why don't you read this book and start?
Also, I recommend reading the author's blog as well, as you can get additional information.
