Options trading risk. 5 options trading myths
Even worse, some experts make it seem like you need a Ph. Investors keep close eye on Hollande Option myths probably started in when Dutch investors bought call options on exotic tulip bulbs. Some people made paper fortunes without ever taking possession of the beautiful bulbs.
When tulip prices collapsed a few years later, so did the Dutch economy, and the once valuable options became worthless. Many investors blamed options for their losses.
The real risk is with the options trader. Myth 2: Options are difficult to understand Options by themselves are not difficult to understand. Basically, you have the right to buy options trading risk sell an underlying stock at a designated price.
Even better, there are only two options: a call and a put, and you can either buy or sell.
Also, the timing is difficult. Options have a limited lifetime, and once they expire, they are worthless, so your stock has to move in your direction quickly. If it were that easy to make a profit trading options, then everyone would be rich.
They are attempting to turn a small amount of money into a huge windfall. Because the options are out-of-the-money, the time remaining before the options expire becomes critical. The stock must make its move before expiration for them to work in your favor.
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On the other hand, selling covered calls reduces risk because you already own the stock. And if the stock tumbles, the covered call owner loses less than the stockholder.
After all, another myth is that someone has a secret. The only secret to making profits in the options market is hard work, discipline, having a plan, and learning how to accurately price options. Michael Sincere www.
The Bottom Line Exchange-traded options first started trading back in