Advice for Options Traders
Having traded stocks for over a decade, I've recently gotten very involved with options. I find these to be a great means of expanding my risk portfolio a little bit, and the rewards of a successful trade are truly a great thing.
I would advise you to study up on options as much as you can before you begin trading them. Too many people learn the hard way by losing the entire amount of their investment. Don't let that be you. Here are a few words to the wise that I hope you'll take seriously.
The first thing I'd like to talk about is the time decay factor. Options tend to deteriorate in value over time due to the fact that as you're further out from the expiration date, the likelihood of volatility is higher.
Let's say you buy a contract for December while we're in the month of April. The stock price is at $13, and the strike price on the contract is $16. Clearly, there's a higher percentage chance that this stock will break $16 between now and December than there is between now and May. As a result, contracts with an expiration date that's further out will sell at a higher price.
Many smart traders also like to hedge their risk by doing things like straddles, or buying puts on their calls and the opposite as well.
It might end up cutting down on your profits a bit if you win, but this will really hedge you if you lose big time. I've seen way too many people lose everything they invested, simply for the fact that they failed to hedge.
Sure, you might not make as much money as you otherwise would have, but investing something like 5 or 10% in the opposite outcome can ensure that you lose much less than all of your investment should your option never hit its strike price.
By adhering to these tips, I'm sure of the fact that you'll be well ahead of the typical novice. - 23200
I would advise you to study up on options as much as you can before you begin trading them. Too many people learn the hard way by losing the entire amount of their investment. Don't let that be you. Here are a few words to the wise that I hope you'll take seriously.
The first thing I'd like to talk about is the time decay factor. Options tend to deteriorate in value over time due to the fact that as you're further out from the expiration date, the likelihood of volatility is higher.
Let's say you buy a contract for December while we're in the month of April. The stock price is at $13, and the strike price on the contract is $16. Clearly, there's a higher percentage chance that this stock will break $16 between now and December than there is between now and May. As a result, contracts with an expiration date that's further out will sell at a higher price.
Many smart traders also like to hedge their risk by doing things like straddles, or buying puts on their calls and the opposite as well.
It might end up cutting down on your profits a bit if you win, but this will really hedge you if you lose big time. I've seen way too many people lose everything they invested, simply for the fact that they failed to hedge.
Sure, you might not make as much money as you otherwise would have, but investing something like 5 or 10% in the opposite outcome can ensure that you lose much less than all of your investment should your option never hit its strike price.
By adhering to these tips, I'm sure of the fact that you'll be well ahead of the typical novice. - 23200
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posted by X - Men @ 3:49 AM
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