The Biggest Myths About Options
I trade options every single day because they are they best product for a retail trader to take advantage of.
Options offer built in risk management dynamics and allow for you to use leverage to your advantage. Most people don’t understand just how big of a benefit this is.
They think about options as a risky product that only professional traders should be using.
This is a massive misconception.
That’s why I want to break down the biggest myths about options for you and explain why they aren’t a product you should be afraid of but one you should be embracing.
Options Myth #1: Options Are Riskier Than Stock
This is easily the biggest options myth out there. Most people who are unfamiliar with options trading will tell you that trading options is inherently more risky than trading stock.
It is true that options are leverage products but that doesn’t make them more risky. In fact, it means the opposite.
A single options contract gives the buyer the right to buy or sell 100 shares of the underlying stock. This means that you can control a much larger position with less upfront capital. This means that your reward to risk ratios are almost always going to be higher in options.
Sure, people that don’t understand how this leverage works might expose themselves to more risk than they intended, but if you understand how to manage options risk properly you can use leverage to profit more and risk less.
This is easily the biggest benefit of options trading.
Options Myth #2: Options Are Too Complicated
Derivatives are a little more complicated than their underlying assets but anyone that understands how to trade stocks would be able to tackle options.
The options market has plenty of unique dynamics that you need to master before trading them but there is a wealth of free resources online that can help you do this.
Read up on options trading and once you’ve nailed the concept move on to trading a sim account.
In trading a sim account you’ll get a great sense of how the market operates and come to realize that trading options isn’t nearly as difficult as you thought it was.
Options Myth #3: Retail Traders Can’t Make Money in Options
The options market is dominated by institutional traders like hedge funds and investment banks. This in no way prohibits retail traders from trading options successfully.
You can actually use institutional order flow to your advantage in the options market because you are able to track and replicate positions that institutional traders are putting on.
This is how all of my picks from the AlphaShark Scanner ar signaled. I look for unusual options activity from institutional traders then try and replicate the position.
I have had students who were able to make huge sums of money as retail traders using this strategy.
Bottom line, options trading can work for anyone.
Don’t Believe the Myths
Options trading is something that everyone can use to their benefit.
Don’t believe the things you hear about options trading being to risky or too difficult for retail traders. I know retail traders who have made millions on options.
Study the market and learn for yourself how options can be a part of your trading plan. A great trader always looks for more tools for their toolbox.
AKA, “The Alpha Shark”