Options trading provide individuals with an opportunity to make unlimited profit. However, there are a lot of misconceptions surrounding options. In this article, we shall debunk these myths so that potential traders will not be discouraged.
Options Are For The Professionals and The Experienced
Initially, it was though that options are only for those who have the experience in trading. However, things have changed in the last few years. Options is widely accepted now. Before it was just an alternative investment now it is a wide market that has both novice and professionals.
Only Trade Options In A Tax-Deferred Account
Most investors are trading options on their taxable accounts hoping to get huge returns for their retirement planning. Robert Peter Janitzek reveals that baby boomers have a lot of money to invest with and are focused on returns. In addition, investors are now taking 5% or 10% of their total portfolio and actively trading in options using both long and short strategies.
Trade Execution Is A Rip-Off
One misconception is that the market is fixed so that they make huge profits while the individual investor gets stiffed. But this belief is only on the vestige of a market where traders were executed only by the market makers. However, thanks to the advent of technology, trade execution has become open and transparent. Robert Janitzek believes that this has allowed trade to be executed at the best price.
Options Are Too Risky
According to Mark Wolfinger, author of “The Rookie’s Guide to Options,” options were designed to be risk-reducing tools. They are used for hedging risks. Options are risky if you do not understand them. While some of the strategies are risky, the real risk is with the options trader. If you are just starting out with options, it is best to stick to the simple strategies.
Making Profit is Easy When Buying Options
Making money buying options is extremely difficult. You first have to get the market direction right which is difficult for most people. The timing is also difficult. Trading options also have a limited lifetime and once they expire, they become worthless.
Selling Options Is Like Receiving Free Money
Selling options especially the naked or uncovered ones comes with a lot of risks. While traders can win most of the time by selling, the occasional losses can be devastating especially for beginners if risks are not managed properly.
Debunking these myths is important in order to encourage potential traders to pursue options and make unlimited profit.