Advice for Options Investors
Having traded stocks for over a decade, I’ve recently gotten very involved with options. I find these to be a great means of expanding my risk portfolio a little bit, and the rewards of a successful trade are truly a great thing.
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.
You may or may not be aware of the fact that options lose value over time. This is known as time decay, and it basically means that the longer it is until an options contract expires, the higher of a price it will sell at relative to nearer contracts at the same strike price.
As you get closer to expiration, that time premium gradually shrinks over the weeks and month. Therefore, buying and holding is never really a wise options strategy. You should generally look to make some short term trades whenever you’re buying and selling options.
Many smart traders also like to hedge their risk by doing things like straddles, or buying puts on their calls and the opposite as well.
It might end up cutting down on your profits a bit if you win, but this will really hedge you if you lose big time. I’ve seen way too many people lose everything they invested, simply for the fact that they failed to hedge.
Had they hedged by giving up just a few dollars, they would have kept 90% of what they lost.
The last thing you want to do is lose your entire investment with options. Sometimes, unfortunately, this happens if your option never surpasses the strike price.
For more writing by this writer, read his blog about cheap worldwide travel insurance and single trip holiday insurance.
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