Many private traders deem that options are thought to be traded by experts with good mathematical skill. There are two reasons why many private traders think so, that are. trading options are too risky and difficult. Many private traders think that it is easier to just trade stocks or futures. So, a simple question, if trading futures or buying stocks looks so much easier and less complex to do, then why options are available to be traded? The actual reason is that options, which are unlike other trading vehicle, can offer a trading edge to the private traders and allow them to cover almost any investment strategy and risk profile with flexibility. In many ways, options are the most superior trading vehicles that many traders use nowdays. To trade options, you certainly do not need to be an expert in financing.
In the book "The New Market Wizards" written by Jack Schwager, concluding that nobody can win without an edge, even you have the world greatest discipline and money management skill. If you trade futures on the All Ordinaries Share Price Index (SPI), you have to know exactly what is your trading edge; Particularly, if you are a professional floor trader. With the trading edge, you should able to see the buy and sell orders that coming into the trading pit and also who is buyer and seller. Beside, the speed of execution of your orders and the transaction costs also should able to see. The popularity of the stocks, options and futures is increasing; therefore, many people trade these products. Only a small proportion of these traders apply a real trading edge. The main reasons for the unsuccessful of many private traders in the financial markets are due to the lack of a trading edge, poor risk management and insufficient capital. The key point here is to find an edge, utilize it consistently and use the right risk and money management techniques. When the odds are in your favor, it is better that you learn how to trade options. It is also importantly when the odds are not in your favor, make sure you stand aside. You are doing yourself with the best possible chance of success if you doing so. Trading systems are as many as traders. We will not trade a system if it does not provide us with some sort of edge. If you have a system, which is able to give you an edge, why not further enhance your edge by trading options in a right circumstance. Before placing a trade, try to get as many factors that going in your favor as possible. By practicing this, you provide yourself with a much greater chance to succeed in the long run.
Without doubt, with any form of trading, there are no absolute guarantees. You can not help compared to the many of the people who do not know anything about options and trade without an edge. But, you have a better chance to succeed in the long run and reach your financial ambitions. Flexibilities that can be offered by options are as follows:
i) Profit gained from an accurately anticipating rising or falling market.
ii) With a reliably small disbursement, your potential returns can be greatly magnified.
iii) If the market goes to the way that you anticipate, you have unlimited profit potential, while you limit your risk by choosing an amount that you afford to risk.
iv) Profit still can be earned by correctly picking options where the market will not go.
v) Profit gained from flat or non-trending bands markets.
vi) Profit gained by letting the time passes by.
vii) Profit gained at an increasing rate when the market moves further in your favor.
Extremely flexible trading tool is option. You can use options trading strategies that are strictly suit your view of market, while sewing them closely to your personal risk tolerance level.
People who trade options for a living and as their business will try to understand and apply the principles, which have been outlined in this article. They do so because they know that there is an edge for then to be gained compare to the people who do not. They are similar to the typical casino gambler if they do not trade with edge; their money will be destined to be lost extremely. They are exactly like the casino itself if they trade with trading edge. For those people who trade the markets to make their living, you probably do not have the chance to talk with them. Their occupation looks exotic and these people are imagined as weird mathematical geniuses who could give their money to Kasparov to run it in a chess tournament. The flair of occupational options traders could not be going beyond the veracity. Although many of the professional options traders who involve in the financial markets are intelligent people, they were not in the genius category. Neverheless, they have one thing in common among them. They knew and applied certain unique principals in their options trading. The principles that they utilized offered then an edge to successfully trading in the market. Therefore, through their options trading life, they earn a good living.
You do not have to have a professional options trader. The edge offered from the principals to the professional options traders also available to the private traders as well. Practically, these principles can be learnt and applied by yourself and the odds can be helped to put it more squarely in your favor. All the advantages that most of the professional options traders have may not be possessed by you. By using the same principals that they used, you can learn to make your trading more selective. In this way, you too can benefit from a trading edge.