Losing money with options
By Simon Gleadall, CEO of Volcube.
Enjoy the Introduction to “Losing Money With Options”, volume VI in the Volcube Advanced Options Trading Guides series.
Options are powerful contracts with inherently explosive profit and loss potential. There are simple ways to lose money with options; none simpler than buying and watching them decay to nothing or selling short and watching them fly in-the-money. But there are also far more cunning and more spectacular ways to lose fortunes, small or large, with options. Losing Money With Options focuses on advanced techniques for losing money with options. The strategies and tactics described are, in many cases, guaranteed to generate losses. The author himself has put many of these methods into practice, sometimes on multiple occasions, and can vouch for their efficacy in causing profits to be steadily eroded or even instantaneously obliterated.
The examples detailed in what follows can broadly be categorised into :
* physical errors such as accidentally entering orders inaccurately
* technical blunders such as hedging in the wrong direction
* ignorance as to how options work
* ignorance as to market events and conditions
Naturally, we are human and mistakes will happen. What matters is that the frequency of such errors is as low as possible and that systems to counter their ill-effects are in place. Most physical errors and technical blunders are avoidable by increasing alertness and by being aware of the likely points of failure. Working hard to improve concentration pays dividends. Analyse errors when they occur to ensure they are very likely to go unrepeated. Errors that relate to ignorance can also be reduced via hard work and study. Market movements may be largely unpredictable but the likely effects on options contracts over a span of possible outcomes can be broadly predicted in advance. Partly this comes via experience, but also by understanding ‘how options work’. Ignorance regarding market events and conditions is quickly rectified with effort. Plenty of resources exist to ensure a trader is up-to-speed; the point is to take notice of that which matters, and to filter out that which does not.
If preservation of capital is one of the keys to long term growth, then reducing the error count is vital. Ideally, losses would only ever be due to a strategy mis-firing and the likelihood of this, one hopes, is ‘priced-in’ by the trader in advance. This then is what a trader must strive for; to only lose money when the market is unfavourable to his plan. And not because he has fumbled an order entry or traded into a strategy on false pretences due to technical ignorance. This book hopes to outline some of the likely trouble spots for the options trader. No such sketch could ever be comprehensive, but avoiding even just one of these common faux pas, could save a trader’s day, week, year or even career.
Have a question for the author? Happy to help! Email [email protected].
Volcube is the world’s leading options education technology, trusted by traders and other individuals everywhere as the fastest way to learn about options trading.
The Best-Selling Volcube Ebook :
“Losing Money With Options”
- Volume VI – Losing Money With Options – Advanced Techniques
Not losing money with options is a vital step on the path to being profitable with options. This volume of the best-selling Volcube Advanced Options Trading Guides details dozens of the most common mistakes and trading disasters that every option trader (whether professional or retail) will want to avoid. In depth examples and recommendations for […]
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