Learn How To Trade Options
I first started trading options while I was in the army back in the late 1980′s. It was right after the October 1987 crash and I was hurting from some ill-fated trades that went sour because of margin calls. Trading on margin was a nice way to leverage, but the insane volatility of that October made me realize that trading on margin was not giving me much (you can only leverage $100 into $200 with a margin account) and was exposing me to a great deal of risk (you can lose everything if there is a margin call). Of course, a margin call back in the 80′s was all but impossible to meet – so they would liquidate your position almost immediately.
High risk – low reward – what was I doing? That is about the time I started to learn How To Trade Options with a focus on the OEX. The OEX was great – it is based on the S&P 100 stocks and very liquid. The best trade I made was in 1989 when I purchased a ton of out-of-the-money puts just before the market tanked. I think I made over $10,000 on that one trade – a good amount of money for a kid trading options.
Thus begins the cautionary tale. That one “great trade” was followed by 10-20 losing trades. In reality, that great trade was an anomalous trade and I frittered away the gain by doing stupid stuff. I learned some seriously valuable lessons, but they were more expensive than they should have been. Today it is even worse – it is easy to open a brokerage account, deposit some cash and start trading without any education. But it is even more important now to get a foundation in your understanding about the options markets – because it is easy to get started and try to trade yourself to success without any background to support your decision making.
So, before you plunk down enough money to buy a small car into your options trading account, take some time – and money – to research the market you will be trading. An excellent way to truly appreciate the challenge of options trading is to attend a class and get in person training. How To Trade Options is two days of intensive instruction in all aspects of options that will provide you with all the foundational knowledge you will need to make intelligent decisions when you decide to make your first trade.
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