options
my old retired broker friendtells me to stay awayfrom option trading, whats your take?
Answers
1786 points
ChaosNantuko answered 9 months ago …
If done properly, it offers many big advantages. If you dont know what your doing, you can lose more money faster then you would've thought possible. That being said, after you get over all the initial terminology, and get your head around the big ideas (may take a week or so), it really isn't that hard.
I'd start by reading these articles...
http://tycoonreport.tycoonresearch.com/articles/164894027/why-in-the-money-puts-are-not-as-risky-as-shorting-stock
http://tycoonreport.tycoonresearch.com/articles/101831748/profit-like-the-casino
http://tycoonreport.tycoonresearch.com/articles/361815010/how-to-double-the-yield-on-treasuries-by-using-options
http://tycoonreport.tycoonresearch.com/articles/650929881/want-to-increase-your-odds-of-success-enormously
2703 points
MNSL answered 9 months ago …
I suggest you must learn thoroughly about option If you want deal with options. It is true there are some risks involved. However there are some benefits as well. If you don’t have much money you can buy some call options. If stock price go up you can make profit by selling your option or buying shares. Some people buy put option when they see that market is going to go down. Really recently some investors made profits buying put options. At the moment I am only interest about call option because it helps market to go up.
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114 points
JakeTollman answered 9 months ago …
Options are like driving...If you don't know what you are doing, it can kill ya. If you learn how to use options, you can then make money in any market condition, up, down or sideways. You can also decrease your risk with options. It just takes an understanding of the instruments.
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112 points
jeri322 answered 9 months ago …
I knew almost nothing about options trading a couple of months ago. After reading several Tycoon pieces on them, I decided to try to learn about them. I went to the CBEO website and did their tutorial on options a couple of times. I also took a book out of the library called "Getting Started In Options" by MIchael C. Thomnsett. It's a great book for a beginner. I first learned about covered calls and decided to make my first option trade. I owned 100 shares of FSLR and sold 1 contract on it. It expired in about 5 weeks and I made about $425 in the premium paid to be for selling it. It's in my IRA, so there's no tax consequence. Then I learned about selling PUT contracts and in the month of March I sold 8 different contracts. My total earnings in premium was about $1,380. At this point I'm learning how to do credit spreads to limit any losses to what's acceptable to me. The only regret I have is that I waited almost 30 years to trade options. However, I will say that it's vitally important that one understands how options work and the risks involved. I wouldn't touch selling a call short for anything! Covered Calls are the way to begin options trading, in my opinion.
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GUMNAAM answered 9 months ago …
Options trading is pure Gambling. In fact it is the worst kind of gambling there is. Options are "wasting assets" because at a certain date they expire worthless. In casino gambling, at least you enjoy even if you loose. In options trading you get ulcers.
Sure, every once in a while you can make a big score but nobody has made consistent money in this game and surely you will not either. As a broad generality It may not be incorrect to say that options trading like any speculation is rewarding IF you know what you are doing. But it is a big IF and will cost you dearly to learn.
As for books on options trading, I would respectfully point out that there are plenty of books available on casino games as well. But has anyone really made a living from casino gambling?
Peter Lynch, in his book "One up on Wall Street" urges readers to think of stock investing as a game of endless stud-poker, where new info on a company is like a new card dealt to you which may increase or decrease your chances of winning the hand. The decision to bet higher or to fold can be made based on these new un-folding "cards". In options trading, you are not betting on the cards dealt to you but on what the next card would be. This kind of betting is ridiculous and a loosing proposition. Peter Lynch writes that, in his opinion, options trading should be banned.
You all know Warren Buffet. He does not use options and he is the RICHEST man in the world. My advise to you is short and sweet: Stay away from options and futures trading.
140 points
GUMNAAM answered 9 months ago …
Dear MNSL---you say call options help market to go up. Surely you jest. Option trading does not impact the market one way or another. Dealing in options is NOT participating in the market at all. Its betting on the DIRECTION of the market.
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SirCrashton answered 9 months ago …
Dear Gumnaam---an inordinately large number of calls or puts at a given strike price can act as either resistance or support, respectively, for a stock's price. Therefore, options can influence the market in the same manner as speculators in commodity futures can influence the price of the commodities themselves. I find it hard to believe that Warren Buffet never used a put option as insurance to protect an investment from a massive loss.
I agree with the other contributors who advocate the judicious use of options as a tool in one's trading arsenal. Learn as much as you can and try some paper trades before plunking down your hard-earned cash on an actual options trade.
Options give you pricing leverage of approximately 20:1since one contract controls 100 shares of a stock. Many brokers advise against trading options because they don't understand them. All they know is, because options prices move much faster than the price of the underlying stock, it's possible to quickly lose your entire investment IF YOU DON'T KNOW WHAT YOU'RE DOING!
118 points
mario answered 9 months ago …
My take is your broker either has been buring in the past w/ options or he has no understanding of options and for his to advise you to stay away from option trading in my opinion is insane . Not only can you leverage yourself w/ options and reduce risk but you can also insure long postions w/ options. I recommend you begin to learn options and go for it
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304 points
larryat36 answered 8 months ago …
First of all options were created as a defensive position, and used to control risk. When used properly they are an excellent way to trade. With that in mind remember trying to do something that you are not familiar with can be dangerous. Befor you try to trade options first take the necessary time to learn how to use them properly. This will not be learned overnight but when you learn to price options and control the risk they are a very valuable tool. If done improperly they can hurt you quickly. As in all trading or anything else for that matter, education is the answer.
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ChaosNantuko answered 8 months ago …
GUMNAAM,
1st... Warren Buffet HAS used things very similar to options before.
2nd... Only the BUYER of the option holds a wasting asset, so the writer doesn't.
3rd... An ITM debit or Credit spread also isn't a wasting asset; in fact, it increases in value as time goes by
4th... People HAVE made money in Casinos. Have you never heard of that team from MIT that managed to get millions from the casinos with a blackjack system?
5th... There is a big difference between Casino Gambling and Option trading. Casino Gambling is built for the sole purpose of having a negative expected value. Options are there to give people more options in terms of stock trading.
As jake said, "Options are like driving...If you don't know what you are doing, it can kill ya".
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