Options? Not an Option!
This is a hot button topic for me. Options are trendy right now. Many people are dabbling in options. The number of option trades today versus historical averages are staggeringly high. That’s not a great trend. That means that too many people are trying something that they don’t know enough about hoping to get lucky. Options trading is not simple or easy. There is a ridiculous amount of information that you have to learn and monitor. So, options cause a lot more harm than good. I hate to see people being hurt by investing into things that they don’t understand. I really dislike people having the mentality that investing is a get rich quick scheme. It’s not! I really hate that a lot of DIY shops are trying to make options seem easy, and that everyone should be doing it. I think everyone should have to take a class and get a certification to trade in them, because they are so dangerous. There are option hedging strategies that you should use if you are a day trader, or managing large sums of other people’s money, but most people shouldn’t be using them(or day trading).
Trading in options is gambling. You are taking a bet that a stock or index will move in a certain direction. If you guess right, it can give you the same high as winning a jackpot. A big win makes most people go back for more trying to recreate that success. But that’s not the whole story. Trading in options can put you in a position very similar to borrowing money from a loan shark. It’s like continuing to gamble more after you have lost all your money. You can end up owing more than your original investment, and have to pay right away. So, it can be even more dangerous for you than gambling if you guess wrong. And it’s all guessing, anyone who tells you differently is probably selling a book or class on getting rich quick with some magical formula that they have discovered. Yet another parallel to gambling is, people aren’t honest about their failures, they only brag about their successes. You never hear a day trader, or gamblers talk about their net gain(what was actually made when you average wins and losses)…
There are many option strategies out there, and I acknowledge that I have painted a very simplified picture. There are many moving parts. Unless you can spend every minute in front of a computer during trading hours, don’t trade in options. Develop an investment strategy, and make it part of your financial plan. Financial success takes work, there is no easy, get-rich-quick path. Implement and work toward financial success with a financial plan.