In this article, we will discuss how options are more complex and differ from stocks. Firstly, trading stocks are plain trading vehicles which rely on the dimension of "price movement." For instance, if one is forecasting a rise of price of an underlying asset, one can just go along a stock. Whether time or changes in market volatility affects the result of one's stocks trade is not something a trader has to worry about. The only thing that matters is the movement of the asset's price.
Before anything else, let me tell you that stocks are single-dimensional trading vehicles which consider none but the price movement dimension. If the price of an underlying asset is forecasted to rise, a trader can choose to go along a stock. A stock trader doesn't need to consider how changes in volatility and time can affect the conclusion of his trade. The only thing he has to look after is the movements on the assets price.
It takes a full year period for a stock to crawl up 10 percent. On this particular stock trade, the trader who bought and held on this stock just made 10 percent. But in the case of an option trader, it is possible for him to get nothing out of this trade or even squanders his money if he simply just bought an option.
A stock has to course through a full year long period to move up 10 percent. The trader who invested and held on to this particular stock gets a clean 10 percent from this trade. For an options trader, this trade will give him nothing at all or even waste his money if he simply just bought an option.
This is why we need to be correctly educated in order to trade options. Simply buying Calls and Puts makes option trading very difficult because of the elements of time and volatility. Remember, options are three-dimensional vehicles, and if we don't understand how to manage these 3 complexities, we shouldn't trade them.
After we understand options more in depth, these investment vehicles can make money in any type of market. Options are very adaptable and allow investors to be very creative once the understanding is there.
Before anything else, let me tell you that stocks are single-dimensional trading vehicles which consider none but the price movement dimension. If the price of an underlying asset is forecasted to rise, a trader can choose to go along a stock. A stock trader doesn't need to consider how changes in volatility and time can affect the conclusion of his trade. The only thing he has to look after is the movements on the assets price.
It takes a full year period for a stock to crawl up 10 percent. On this particular stock trade, the trader who bought and held on this stock just made 10 percent. But in the case of an option trader, it is possible for him to get nothing out of this trade or even squanders his money if he simply just bought an option.
A stock has to course through a full year long period to move up 10 percent. The trader who invested and held on to this particular stock gets a clean 10 percent from this trade. For an options trader, this trade will give him nothing at all or even waste his money if he simply just bought an option.
This is why we need to be correctly educated in order to trade options. Simply buying Calls and Puts makes option trading very difficult because of the elements of time and volatility. Remember, options are three-dimensional vehicles, and if we don't understand how to manage these 3 complexities, we shouldn't trade them.
After we understand options more in depth, these investment vehicles can make money in any type of market. Options are very adaptable and allow investors to be very creative once the understanding is there.
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