Beware the Hype in Options Trading

Posted: Jul 01, 2009 | Comments: 0 | Views: 42 | Bookmark and Share

Selling education on options trading is a big business. We see infomercials on television and receive emails advertising free trading software and foolproof trading systems. Unfortunately, there are many “snake oil salesmen” operating in options education. They are busy selling the dream of instantaneous riches without effort – and their price tag isn’t cheap.

I recently came across the following statements on option education web sites or advertisements for those web sites:

Make all the money you ever dreamed of trading options!
Trade options like a pro tomorrow!
Want to make 627% trading options?

The first statement doesn’t even deserve comment. The second statement is extremely misleading. It is certainly true that ordinary people of average intelligence can learn how to trade options – but it won’t happen tomorrow! Learning the fundamentals of options terminology, how options trade, how they are priced, and then all of the different options trading strategies and their behavior in differing markets simply does not happen overnight. It requires time, effort, and practice. In my experience, a minimum of six months is required for the fundamental education, paper trading, and then some taste of success trading in small lots before scaling up in volume.

The advertising line, “Want to make 627% trading options?”, is preposterous, but apparently it sells and brings in people. Certainly, it is possible to make returns of several hundred percent trading options. But it is also true that you could easily lose 100% of your money very quickly if you did not know what you were doing. Options trading strategies with the potential of several hundred percent returns are inherently trades with low probabilities of success. So, yes, I would like to make 627% trading options, but the presumption in this advertisement is that you can do that on most, if not all, of your trades. That is simply not true.

If you are interested in learning to trade options, here is a checklist to ensure your success:

1.    Find a reputable options education firm.
2.    Continue your search if the options education firm hypes the potential returns or suggests this will be quick and easy.
3.    Check references from former students.
4.    Expect to spend at least three months learning the fundamentals and trading on paper.
5.    Hire a trading coach who will be on call to help and answer questions as you begin to trade with real money (this will actually save you money).
6.    Scale up slowly.

Learning to trade options and generate a steady income from the markets is indeed feasible. But it requires time, effort, practice, discipline, and coaching to be successful. Don’t be deceived by the hype.

(ArticlesBase SC #1004656)

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