Things to consider… When you think about starting to trade options.
Many people who start trading options come from a share trading background. In making their transition to options trading, they often carry with them their share trading thinking. That’s all well and good, and still very useful. But to become a successful options trader, there is more knowledge needed.
Options are rich in nuance and subtleties, especially when you start to combine different options into trades. In fact, options are so rich that there is almost an infinite number of ways they can be traded to exploit all sorts of market conditions. The reason that options provide such a powerful and wide ranging palette of strategies is they simultaneously offer unlimited potential profit, yet at the same time they can strictly control downside risk, if used properly. There are no margin calls or other obligations with options. Shares and other assets don’t do that: they can keep losing money if they go the wrong way. But you can trade options very successfully and reliably under most market conditions with some basic knowledge and the correct attitude.
With share trading, often it’s good enough simply to consider the underlying share price, and to make trades based on your price forecasts. Many inexperienced new options traders wonder why their options suddenly lose so much value, even though their forecast on the underlying share price movement was correct.
So what’s going on? There’s something more happening than meets the untrained eye. Well, just like shares, options trading is a zero sum game. To take profits out of the market, someone else has to lose money. For you to become a successful trader, you are going to have to be, on average, better than some other parts of the market. You need enough knowledge to shift yourself into the group at the upper end, who generally make more money than they lose. The two most important factors which determine who will be in that upper group of options traders are: Knowledge and Attitude.
Let’s talk about knowledge first. To trade options successfully, you need to understand and forecast more than the underlying asset or share price. In fact the three most important factors which you need to understand are Price, Time and Volatility.
Time is much more significant in options trading than in underlying share trading. Not only should you pay attention to the timing of your trade entry, you also need to consider the time span required for a trade to develop.
But probably the most widely overlooked or misunderstood aspect of options trading is volatility. Volatility has a significant effect on the market price of options. We go to considerable lengths to give you a sound understanding of volatility. We explain volatility thoroughly from all angles and in all contexts. Equipped with a solid understanding of volatility, we then show how you can align your trading to get volatility working for you and your trades, instead of against you. We not only use volatility to determine our trading strategies: we also use volatility as our initial starting point to find trades. This is quite different from finding trades based on price charts.
Of course we also give consideration to price, but in conjunction with these two other factors: time; and volatility. We look at the market in three dimensions: price, time, and volatility.
I also mentioned attitude. In addition to knowledge, a big factor which determines success in any trading – not only options trading – is attitude. Everyone is different. Some people will never become successful traders. They are simply not psychologically equipped to trade, even with all the knowledge on earth. Often it relates to their ability to deal with chance. Sometimes people become unsettled at the “unknowability” of the future, and the possibility of future loss.
Successful trading is a statistical game: a game of chance. You will win from some trades; and you will lose from others. At least 20% of our trades will lose money. We will show you how to deal with that, for preservation of your capital is paramount. We establish a whole series of guidelines each of which increases the chances of each trade returning a profit. We show how to let profits run and how to cut losses short. There is an old adage: “Watch your losses, and profits will take care of themselves.” We put great effort into risk management and how to strictly control possible loss at all stages.
This requires disciplined management of
- each trade,
- your whole trading account, and
- your own psychology – your emotions and attitude.
There is a range of different characteristics and psychological attributes which come together to make a good trader. Essentially it’s a matter of knowing yourself. If you know your own responses to fear, hope and greed, you can become a very successful trader by constructing your own trading rules which you tailor to your own individual character.
We bring all these factors together, along with many others, to create a complete set of skills which provide a methodical trading system. We’ll equip you with everything from the basics at the start, the theory, and take you through practical examples, right through to real trading at the end. We have the time and patience to go through with you in careful detail, to give you the opportunity to get a solid understanding at the most fundamental level. We don’t abandon you at the end of the theoretical component of our mentoring course. We will walk side by side with you as you take your first real trades.
To express your interest in our Mentoring course, please fill out this questionnaire, and we will contact you as soon as possible.
I wish you much success and good fortune on your trading journey!