I’ve been a stock trader for the last ten years and I absolutely love the thrills of making a great trade. I find it quite addicting. Unfortunately, losing money on a trade can be just as disheartening, if not more.
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.
Once the expiration date of the options contract approaches, this price gap will begin to close, as the prices of options decay. Those people who bought these contracts months before and still hold them will see their investments shrink relative to the movement of the stock. Therefore, you don’t want to buy options and hold onto them for too long.
You’ll also want to hedge your bets whenever trading options. Try buying some puts to the extreme if you’ve bought calls, and vice versa if you’ve bought puts. This requires discipline, but it’s standard practice amongst the most experienced and successful traders.
A patient and wise investor will generally do this for the protection and the piece of mind.
Had they hedged by giving up just a few dollars, they would have kept 90% of what they lost.
By adhering to these tips, I’m sure of the fact that you’ll be well ahead of the typical novice.
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