4 MYTHS ABOUT OPTION TRADING




Options trading means trading in calls and puts. Call option and put option trading is easier than most people think. If you have never traded options, or you have traded options but are not clear about strategies and fundamentals , you are surly missing something very useful. Not only is it easy to learn, but trading puts and calls should be part of every stock investor’s strategy. First let’s see some of the myths associated with options trading.

– MYTH 1 – OPTIONS ARE TOO RISKY

YES , options are too risky if you do not understand them properly.In fact, options are designed to reduce risk. They are best hedging instruments available for traders and investors of stock market. If you do not know how to use options , they can be very risky. But then without proper know how , even car driving is equally risky. So risk does not lie in options but lies in insufficient knowledge about options and option strategies.

– MYTH 2 – OPTIONS ARE DIFFICULT TO UNDERSTAND

Options by themselves are not difficult to understand. We are using concepts of options in our routine transactions such as car insurance, health insurance etc. Only problem is, one need to apply ourselves and may need a help of good training to understand options. The difficult part is that options can be used to formulate complex trading strategies with flashy names. So its advisable to stick to basic strategies as a beginner.

– MYTH 3 – IT’S EASY TO PROFIT TRADING OPTIONS

Many believe that it is a sure short and easiest way to make money through trading options. But still there are lots and lots of people who regularly loose money in options. It requires lot of knowledge , patience and discipline to make money from trading options and yes .. easier said than done.

– MYTH 4 – HIGHLY ABNORMAL GAINS ARE POSSIBLE THROUGH OPTIONS

Every now and then you might be receiving a communication from some tips provider about 100% or even 1000% returns through options trading and will try to lure you into his subscription. My question is even if you start with Rs 100 and make that type of profits, nobody can stop you becoming richest man of the world in very short period. Than why is he selling his secret ? Fact is that everybody shares one good trade and forget to share 99 bad trades with you.  Fact is you can consistently make 4 to 7% returns every month through proper logic and reasoning and this in itself is huge and qualifies to be abnormal. But 100% , 1000% …. no clue.

 

5 questions you should answer BEFORE entering the trade

 

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