Whether you are still thinking about getting started or already actively trading options, it is very important to take the time to learn and REALLY understand all of the risks involved. Options trading is a completely different animal when it comes to the general world of investing. Thousands upon thousands of dollars have been made (and lost) by options traders.
When it comes something as volatile as trading in general, you need to make sure that you understand exactly what the risks are. Add in the complexity of options trading and you have a whole new set of traps to watch out for as you continue to educate yourself.
Options Trading Requires Additional Knowledge/Education
In and of itself options trading requires some additional knowledge and understanding. Stocks and stock trading are easy to understand for the general masses. Why do you think they are so heavily marketed and push by brokers? Because they are easy to explain to Joe Smith down the street!
Now, that’s not to say they are better than options, and we argue that stocks are not superior to options on many levels. But option trading is not for the weak of heart and requires active participation as long as there is money in play. You NEED to start to gain and understanding of the basics that make up Option Pricing, Option Strategies, Time Decay, Expiration, etc. This will help you to stay ahead of the game.
It’s More Like The Insurance Business Than Anything Else
Remember that option trading is not really investing. Investing is really a much longer term concept. You invest in Real Estate and Companies and Business. With options you don’t directly invest in the company – you take a speculative position on it’s stock. You could care less about what the company does or what product it makes right? You are just interested is making sure it moves enough to make you money before expiration.
Moreover, for option selling strategies like the ones we use and suggest, options trading can be more like an Insurance Business. You sell Premiums much like an insurance company would and make sure that you are protected from catastrophic disasters (in which case you would have to pay out to the option buyer). It’s not as much as “thrill ride” as day trading, but Insurance companies are among the best companies in the world (minus AIG of course).
The Road May Be Long, But The Reward Is Great!
Options trading can be a very rewarding professional if you are careful and aware of everything going on around you. Just make sure that you research the risks involved and always continue to learn as much as possible. Nothing that’s worth getting is easy in life and options trading is such put in that category. But, if you align yourself with the right people and the right tools, you will profit!