The 1 Biggest Options Trading Mistake Ever

Recently, I have been answering options trading questions posted by options trading beginners at my website and it amazes me to find that MANY of these questions surround a single theme. Some of these questions are like:

“I just bought a call option, how do I take profit?”

“I bought a put option at XXX strike price, so what does it mean for me to hold this put option?”

“I think I made some money on my call options but how is profits calculated?”

Options trading beginners asking questions like that are making the biggest options trading mistake ever made by beginners and that is… Buying options without knowing completely what options is in the first place!

It never fails to amaze me how many people are buying options without first knowing what options are and what they do in the first place! Incredible but true! This is the reason why so many beginners lose their shirts. Stock options, as a leverage instrument, is merciless when it comes to losses especially when you don’t know what you are doing and that has resulted directly in many horror stories surrounding options trading.

Would you drive a car without knowing what a brake pedal does? Would you operate a new machine without knowing what all the buttons does? Why then would you buy options when you don’t know what everything in options trading mean?

After pondering hard on this question of why beginners are buying options when they don’t even understand what options does in the first place, I arrived at the conclusion that too many beginners think buying options is as simple as buying stocks. In stock trading, all you have to do is to choose your favorite stock and then buy it. That’s all you need to do. However, in options trading, there are options of various strike prices as well as expiration months, so, how are you to know which single option to buy in order to fulfill your trading objective if you don’t understand the difference between strike prices and the effects of different expiration months?

Amazingly, a lot of beginners today continue to make this single most deadly mistake and then when they get stuck in a trade, they try to find “quick fixes” on the internet, which of course, doesn’t exist. Perhaps we are now living in a world of quick information and a spirit of adventure and trial and error such that many people think that they can learn options trading the same trial and error way. Of course you can but it will eventually lead you back on the road to learning about what options is completely and the difference is that you would have paid thousands of dollars in school fees to the market. Most deadly of all is that the losses would have affected your trading confidence and cast a shadow of fear in your heart, leading to emotional decisions in your future trading. Yes, it can break your options trading for life!

In conclusion, there is a lot to learn about options and small changes like buying a different strike price can lead to very big end effects and if you don’t know what all these does in the first place, how are you to optimize your profits and minimize your losses? In the end, all options traders who took the easy way out (of course I would regard that as the hard way out) of simply taking the plunge and learning from the experience would still come back to getting a proper understanding of options. I recommend all of you who are contemplating options trading as part of your investment arsenal to learn completely what options is and what it does BEFORE getting into your first trade.

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