Monday, November 21, 2011

How to Trade Options with Lower Risk

By Donald Scott


You know, I've been trading options for about 10 years now, and during this long time endeavor to achieve success on the stock market, I've made a lot of friends along the way. I've met numerous option traders, probably somewhere in the hundreds, and the truth is, there has only been a handful that were making money. So I wonder why there are so many people out there investing in the stock market when most of them only lose their capital.

By far, this is one of the most fascinating issues I will discuss with you. Even if people are aware of the risks involved in the trading business with only a few really coming out making money, I believe the reason why more and more investors are jumping into the stock market is that people are actually enjoying the challenge. Believe me; I like the challenge myself. I enjoy analyzing trades, doing the research and forecasting probabilities. There is a sense of excitement in working with stock options, and the challenge that goes along with it gives me a feeling that there is always room for improvement.

Another reason why a lot of investors stick with option trading even though they do not find immediate success is because it's a profession that involves a lot of creativity. There are literally an infinite amount of option strategies that can be created if you have an open mind. This to me makes option trading a never ending world of exploration.

But the question remains. Why are there so many option traders out there that do not make money? The common answer to this question is that your average option trader does not know how to properly adjust an option position. While this statement is somewhat true, I don't think it's actually the answer that we are looking for.

Until recently, I hadn't realized what the underlying issues of the problem were. Failure in option trading is not entirely attributable to a trader's adjustment strategies. Honestly, the most experienced option traders have mastered both money management and making sensible adjustments to their portfolios. Failure sets off from the very moment the trade is started. Being a good option trader and having risk management skills alone cannot guarantee long-term success in trading options unless we learn to construct option trades with a lower-risk factor from the very start. This is the key to long-term success in option trading.

It is by studying with San Jose Options that I have come to these insights. I have learned to construct trades with lower risk but with very high probability and expected returns. I have never, ever seen safer ways to construct trades in my whole life before. If you are consistently losing money with options, then it might not be your adjustments, but rather the type of trades you are constructing from the beginning. Failure often times is not in the adjustments; it's embedded into the trade itself. Remember, strategies that worked 20 years ago may not work today. We no longer need to call a broker by telephone to place a trade. Today's market requires option strategies that can handle more volatility. Anyhow, may luck be with you today and your option trading; as for my part, I am pleased to meet yet another option trader like you, and thanks for reading my article.




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