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Actually buying cheap and selling expensive volatility is option trading Option trading is more multidimensional. You may get the price direction right but you were wrong on the implied volatility and the amount of time it takes to get to a price ( or not get to a price ) and still lose money.
That is the beauty of options. You have your opinion on what the market/stock will do and you find a way to express it using option.
As for the volatility smile, it is natural. I think it is just that people tend to sell the near the money and buy further out to cover. There is a saying "sell the meat, buy the wings".
I learned option trading by trading and from exchange members. I look in horror how places like Optionetics teach people to trade options. Follow people like that and you will lose money.
many books on options but start with this easy to understand Options For The Stock Investor: How Any Investor Can Use Options to Enhance and Protect their Return by james Bittman
I never exercise and my trades last a few days only. As long as you buy and not write; you basically have the right, but not the obligation to buy/sell the shares.. which means you just risk your premium as long as you long calls/puts.. nothing more..
there are so many ways to slice and dice the cat with options.. and I am simplifying things a lot... I mean, a flavor for everyone to the point it can get so complex that it will bore the hell out of you.... IMO, start out small and only buy(never write, and if writing, dont do go naked) until you learn to do more complex trades with more legs(condors/butterflies/strangles/etc)..
that was my approach, and it worked for me... doesnt mean it will work for you, so just grab what you think will work.
I added writing calls against my portfolio for income about 4 years ago, but I have not held equities outright on my account for close to 2 years now, so I dont really write unless as part of a strategy.. if writing, ensure you always protect yourself but there is still risk, and one never knows.. so ensure you define and accept the risk clearly.
I second @sam028 advice... stay away from stuff over $50... and unless you have $250K+, stay away from appl/goog... risk and money management rules still apply to options trading...
there are plenty of opportunities on the $10-$30 range .. just use NT7 to do the market scan for the parameters that will work for you..
That book is from one of the instructors of the CBOE Options Institute. You can buy it for less than USD 7.00 from Amazon. Some time ago the text could be downloaded for free.