Key to Options Trading Success
Author: Jason Ng
Lately, I have been asked about what I think is the single key that determines if you would make it as a rich man in options trading.
This is an extremely interesting question as I am not someone inclined to believe that any single reason constitutes to the success in anything at all. However, that got me thinking hard and reflecting on my own success in options trading. Then I decided to frame the question a little bit more academically. All things equal, what is the single key to options trading success? All things equal meaning everyone has perfect control over their emotions and will execute flawlessly all orders that they are required to without human errors and that market conditions as well as options trading knowledge is equal amongst all.
Imagine a group of options traders who knows all the options strategies available in options trading and exposed to the same market conditions. What will determine which one or ones of them makes a profit?
I came to a conclusion about what I think is the key to options trading success and that is the exact same key to stock trading success; the ability to pick stocks that will perform exactly as you would like it to.
Yes, sad but true, it's the same thing in stock trading. You make money only when you buy stocks that goes up or short stocks that goes down.
In options trading, you only make money when you apply bullish options strategies on stocks that go up, bearish options strategies on stocks that go down, neutral options strategies on stocks that remain stagnant or volatile options strategies on stocks that stage quick and explosive breakouts.
You only lose money in options trading when you apply bullish options strategies on stocks that goes down, bearish options strategies on stocks that go up, neutral options strategies on stocks that breaks out and volatile options strategies on stocks that remain stagnant.
This single condition for losing money in options trading is, all else equal, the only key to options trading success; the ability to pick the right stocks or the ability to predict the future direction of a stock or index correctly.
Yes, being able to predict future market or stock direction accurately and consistently is an important skill in investing and is a far more fundamental skill set than knowing all the options strategies there is.
If that is the case, why options trading?
Well, even though the key to success in options trading is largely the same as the key to success in stock trading or any other forms of investment or trading, options trading does have a few tricks up its sleeves to help put the odds in your favor.
First of all is leverage and protection. The ability to risk lesser capital for the same profit or a lot more profit with the same capital already puts the benefit of risk in your favor. Even credit strategies can be low risk if proper stops are used.
Secondly, is the ability to make a profit in more than one direction! Yes, since the key to success in options trading is the ability to "guess" the correct direction the underlying stock or index is going to take, won't your chances of success be dramatically increased if you could profit in more than one direction? Yes, you only get that in options trading.
For instance, a Bull Put Spread is a bullish options strategy that makes a profit when the stock goes upwards, remains stagnant OR drops a little! Yes, all 3 directions! Won't your chances of success be dramatically increased with strategies like that?
Yes, the key to stock options (
http://www.optiontradingpedia.com/stock_options.htm )trading success is the ability to pick the right stocks which translates into the ability to accurately and consistently predict the future direction of the underlying stock. Nobody can do that consistently and that is why options trading puts the odds of success in your favor through options strategies that profits from more than one direction.About the Author:
Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management (
MastersoEquity.com ) and author of an
Options Trading education site, Optiontradingpedia.com. He is a fund manager specializing in options trading and his revolutionary Star Trading System has helped thousands.
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