Becoming an Options Trading Guru
These days everybody wants to be an options trader. With the flexibility of a part time job and huge reward potential it is clear why so many people are into it. Being able to play both sides of the game is also another reason why so many investors are drawn into the pool. With all these great incentives available, what does it really take to hit it up the options game?
Getting Started in the Options Game
As stated before, options are unique in the way that you can play on either side of the game, or both, if you so choose. You can either make your gambles against the so called "house" or take bets, known as calls and puts, from other investors. This unique way of investing gives investors a totally different way to invest their assets compared to traditional purchases of stocks, bonds or mutual funds. Options are great for reducing risk as well if they are used properly.
Unfortunately, many investors enter the game with no knowledge of what needs to be done and quickly decide to leave the pool as soon as they start seeing huge losses. As with anything, whether it be buying a car, a house or any other type of investment, it is extremely important to become well educated in the field you plan on entering. You wouldn't just spank off $25,000 on a car you saw sitting on the side of the street without getting more information about it, would you?
The ability to separate emotion from your trading lifestyle is also a key element. Whenever a trader is forced to make decisions based on emotional strain the outcome is almost always going to be negative. If gambling the mortgage payment, the kids' lunch money and next week's electric bill is your way of "investing for your future" then it is suggested to leave the investing game immediately and seek help.
While everything in life has risk in some form or another it is important to realize that investing goes the same way. Especially in the world of options where an average "win rate" is somewhere around 20% on average, it is dire to keep in mind the possibility of loss. Compare it to whatever you want, there is risk involved depending on how you see it. Some people believe trading the stock market is evil and would prefer to play Keno at their local casino. Sounds rather idiotic, right? The odds to take top prize in Keno are 430 billion to one. Now add in the risk factor of your other favorite casino games such as blackjack, roulette and craps. Still think options trading sounds like a huge risk?
Most investors do their research and execute a well thought out on plan. The risk is there, but it can be somewhat brought down by a great plan of attack and a knowledge of the markets. While a 20% win rate may seem small, it's important to keep in mind how many of those scores were big ones.
Let's say an investor has a win rate of 20% and a loss rate of 80%. At first glance it seems they have totally lost and need to give up on investing in options all together. After taking a more detailed look, it is easy to see how a as skilled investor is able to stay in the game. Even though his losses count at 80% of the time, it is totally possibly that his winnings in the 20% bracket completely outweighed all of his losses. This is where some individuals believe lucky plays a factor in their investments.
By making investments of varying sizes and diversifying at the same time the investor is able to make huge scores on his wins and take small losses on his wins. By using this strategy an investor is able to reap huge return on investment for his wins and minimize the losses to a point that they actually become irrelevant. It is commonly believed if an investor can keep these simple rules in mind while having a great understanding of how the game works, it is easy to become successful in the game of options trading.