Who are options traders and what they do?
Many people believe it is risky to become an options traders. This incorrect assumption is prevalent among those who have little understanding of the stock market. The notion that trading options are scary has been perpetuated over the years by general ignorance. The truth is that the stock market is a risky endeavor regardless of what strategy or approach you take; that’s the nature of investing. But being an options traders comes with no additional risk than someone who trades stocks.
It’s just like driving an automobile. The idea of driving a 2,000-pound piece of machinery at speeds of 75 miles per hour does sound daunting, but once a student learns how to properly drive a car it no longer seems as dangerous. The same is true with options; once a student learns the basics, the idea no longer sounds crazy. An options traders know there are potential dangers that are inherent with that style of trading, although there are an equal number of advantages, too.
Among the dangers faced when trading options are:
Their options trade has a time limit from the moment they enter into the position; an option is good for a specified amount of time before it expires worthless. If the trade doesn’t work in the expected direction, there may not be enough time for the position to come around.
Stocks that make big moves can be scary to trade. A big price move in the wrong direction can put a trade in a bad position in a hurry. On the other hand, a big move in the right direction can result in windfall profits.
It does cost more to enter an options trade than a basic stock trade. Check with your online broker to see how the fees are structured; you may want to look for a new brokerage firm if your current broker’s fees aren’t in line with other companies.
Among the advantages to trading options are:
Options are often more affordable than stock. Traders who could not begin to fathom the ability to trade the stock of big-ticket companies like Google or First Solar can usually afford to buy options contracts.
A trader is only responsible for the amount they paid for the option. In other words, if you bought 10 call option contracts on XYZ stock for $3, the most you could lose would be $3,000, regardless of how far the price of the underlying stock plummeted. If you purchased stock you could lose your entire price of the stock.
There are many strategies that can be used to trade options. Some work in a bear market, others work in a bull market, and some work when the market is stagnant. Students need to find the strategy that fits their own personality, risk level, and degree of involvement they want each day.
Enrollment in a stock market education program like TechnicalCall can help you learn to become a more astute option trader. You’ll learn the proper way to buy options that are designed to keep you safe and help you become more profitable. Education is the only way to bridge the gap and a thorough education can explain the process, clear away the confusion and help individuals find the most productive way to trade