Learn what the is difference between Intraday and positional options trading.
Traders start with buying options due to the lure of limited loss and unlimited profits, forgetting that this is only possible if they are good traders. Fact is “limited loss and unlimited profits” is only on paper. I have not met, known or heard in media a single trader who bought a call for 10 and sold if for even 100, forget about unlimited profits.
Even Warren Buffett profits are limited every year. His Compound annual growth rate (CAGR) is just over 22%, but on a multi-million, sorry, multi-billion corpus. Still he went on to become the best stock market investors the world has ever produced.
This is where traders get confused by reading or being told by brokers that buying options is limited loss and unlimited profits. They do not try to know the facts if anyone ever has done it. Only after they start losing money they realize that the phrase, “limited loss and unlimited profits” is only on paper not in the real, stock trading world.
In any case somewhere down the line a buyer has to close the trade some day or the other. Let us assume an option buyer bought an option for 10 and sold it at 100. In this case as well where is the unlimited profit? Fact is once the profit was booked, the trader only made a limited profit of 90 points that is all.
So there is nothing as unlimited profits in any business in the world please get your mindset right before buying an option.
Once they start losing money buying options they start selling options. Then for a small time they see success and get very happy selling the options going worthless on expiry day. At least they are making limited profits. Then one day after three or four months a storm comes and all the profits they made in last 3-4 months plus some capital too is lost.
Traders then get confused. What to do, buy or sell? They are losing money by both buying and selling.
The problem is traders who lose money do not know hedging methods or are not willing to hedge because of greed that if I win I need all the money I made, forgetting that if they, lose they will lose all they made and that day is not far away.
If you study how the HNI (High Net Worth Investors) trade you will see that they always hedge their trades. They have millions of dollars at risk. One bad trade can wipe out millions of dollars. To avoid that they properly hedge their positions. On top of that they are never into Intraday or day trading. The most popular trading method of a novice trader, equity, options or futures.
Day or Intraday trading is a sure shot way of losing time and money. How many Intraday traders have become millionaires? NONE. Why? Because Intraday trading is the worst form of trading even for experienced traders. They know this therefore do not trade Intraday at all.
For example today if an option has been bought for 50, it may close at 40 and the Intraday day trader will take the loss. But the positional trader can carry that position for next 30 days or more until expiry. There can be a chance that that option may go to 70-75 someday before expiry and the positional trader can close the position for profits.
Another benefit of positional trading is it can be hedged, whereas Intraday trading does not need a hedge as it is monitored closely. Positional traders can trade and leave their trades do their job in the background while they continue their job. They can check their trades anytime they want and take their profits out.
This is benefit of positional trading. Grow your income while trading the stock markets and get your salary from your job or make money from your business too.
You can do the hedging options course to learn positional options and futures trading with proper hedging to take the fear out of losing too much money in stock markets.
Hedging works as insurance to protect your capital. When required hedging do their job perfectly to limit your losses. But hedging needs to be done properly. For that knowledge is required, which you can get by doing the conservative options and futures course.
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