6 Mistakes to Avoid When Trading Options
by Bryan Perry 08/08/08
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Your goal as an options trader is to move the odds in your favor wherever possible to ensure the success of your trades. Everyone likes to talk about their successes, but it's really the mistakes that teach us the most.
Even professional traders have taken a lot of lumps in their career, so today we're going to review some of the most common (read: most costly) mistakes that people make when trading options. I hope this will save you a lot of time, money and frustration as you embark on your options trading journey!
1. They have NO EDGE when making trades!
Why do traders get into certain stocks (or their options)? Well ... most of them don't have any idea. And when you don't have any idea why you're getting in, you've got no edge and, thus, no strategy.
Let's face it, stocks are volatile and move for a number of different reasons. They are also impersonal -- meaning, they really don't care if you own them or not. Not to mention, but for the most part, stocks will be around for a long, long time and can typically be closed whenever you want, for some value.
Meanwhile, options expire and these trades either win, lose or break even on your investment. Even though you should be playing the options game with your "funny" money -- i.e., what you can afford to lose -- many traders (especially new ones) forget that they're still playing with real cash.
Options are much more volatile than stocks, so it's crucial to ...
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