What is your experience with options trading? You’re not going to corner this market overnight, but you certainly are going to benefit as an investor if you decide to give it a shot. Look at options the same way you did the market when you first started buying stocks. Inch by inch, life is a cinch, right?
Consider the current size of your portfolio and how options can fit. Many investors get excited about options contracts and want to dive right in with trading calls and selling naked puts. It’s all about that leverage, right? You don’t want to tackle the options market all at once. Be sure that you start small.
There are certain mistakes that beginner options traders make when first starting out. It’s a good idea to know what those mistakes are so that you can avoid them. For starters, you always want to have an exit plan. You might be thinking about potential losses when you hear that rule, but the truth of the matter is you also want to know when to take profits.
The options market can move rather quickly. While the prices of contracts are in relation to the underlying securities, bidding wars dictate the volatility of the options market. More seasoned traders are often participating in options trading, and they know how to be patient and look for opportunities to maximize profits.
Seasoned traders don’t mind placing a bid and waiting. People with more money can often wait out others who might not have learned that type of patience just yet. That’s one of the rules of the options game that you want to learn right away.
What I always tell people, too, is that you might want to consider starting out with selling or writing covered calls. Doing so isn’t just considered to be the safest move, but it provides you with a tactile learning experience. You get to learn the options market before you start making bigger moves.
Selling covered calls provide you with the opportunity to hedge against your portfolio. Yet there’s much more to this options strategy than just hedging. You know how volatile the stock market, in general, can be. Especially in a long-standing bull market, writing covered calls can be a great strategy.
Let’s look at another mistake that investors often make. You’re hoping to place quite a few winning trades when it comes to the options market. Yet you’re not always going to be ringing the register so to speak. There are those times when you’re going to have an exit strategy in mind for cutting losses, and you’re going to move on to another trade. Visit Trade Ideas Promo Code to learn about different exit strategies.
You’ve jumped the first hurdle, but this is where you want to be careful. You’ve just cut your losses on a trade, and now you’re looking to make your next big move. Don’t ‘double up’ so to speak and place an irrational trade just because the potential profit looks enticing. For example, it’s rare that people sell puts that are already ‘in the money.’
You also want to be sure you’re careful when it comes to liquidity. Some options are less liquid than others. If you buy or sell an option that doesn’t have much volume, then you might have more trouble exiting the position when the time is right. You don’t want that to happen.
You also need to be sure that when selling options, you’re willing to take opportunities to buy them back at a profit. There are countless stories where options traders have declined to do so, only to see the trade start heading in the other direction. When your gut tells you to take profits, do it without question.
It is perfectly fine if you find out you left money on the table. You go into trades thinking you’re going to maximize profits to the utmost every single time, and that’s when you’re going to start placing more losing trades. You can’t be fixated like that when it comes to the options market.
Learn from the seasoned traders out there and the mistakes they’ve made. Take the options market one bite at a time. Start out small, and get that hands-on experience, building up your portfolio piece by piece. One day you might sell naked puts but not today.