There are many ways to play options most of which I also find rather confusing. The book that got me on the right track was Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg. Instead of just describing various types of trades it explains the basics of how options work and that lets one create one’s own strategies.
Alan Ellman’s Complete Encyclopedia for Covered Call Writing. Kindle Edition is an easier read and it deals just with covered calls, the least risky options trade.
To truly understand covered calls one needs to understand the mathematics of gambling casinos. The seller (me) is the house and the buyers are the gamblers. Each game has a vigorish, the odds in favor of the house. While the outcome of any one hand is close to random the law of large numbers practically guarantees that the house will win long term. It’s the same mathematics that underlies insurance. But the house needs some rules to keep the games safe, the most important being the limit on the size of the bets.
The seller gets to pick the game he wants to play. The buyer takes it or leaves it. The trick, then, is to make sure the odds are on your side. Natenberg’s book teaches you to create your own ‘games.’
I wrote a great many posts on covered calls at NPI. You can find them with this Google search:
site:boards.fool.com “New Paradigm Investing” covered calls
Ellman’s Complete Encyclopedia for Covered Call Writing does a good job explaining how to write covered calls. What I’m doing in addition is looking at the market and adapting the basics to the current circumstances. That takes some training in technical analysis, i.e. charting. I’ll outline the basics but the actual trades depend on the circumstances. A Bull Trap is one such case.
The Captain
BTW, The Kelly Criterion is the mathematics that keeps players from going broke: