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Chart of the Day / The Most Ridiculous Options Trading Myths

The Most Ridiculous Options Trading Myths

February 19, 2019

Unbelievably, traders are still scared to death of options.

They’d have rather made 36% when Square Inc.’s (SQ) stock jumped from $55 to $75 rather than the 135% they could have made from a March 2019 call option.

That’s like you telling me you’re okay making $350 on every $1,000 risked than $2,350.

All because traders believe the myths of options, including:

Myth No. 1 — Options are only for professionals with years of experience.

This is not true whatsoever.  If this were true, you couldn’t find the thousands of sites and software solutions offered for beginners.

Thousands of retail investors just like you and I use options every day.

You don’t need years of experience, just solid education on how to trade them.

Myth No. 2 — You have to be rich to trade options.

Nice try, but no.  This is a bad misconception.

One hundred shares of Apple can either cost you $17,000 right now.  Or, you pick up one contract, which carries 100 shares – none of which you ever have to take ownership of.

For example, I could buy an AAPL March 15, 2019 170 call option for just $490.

That’s a cost savings of $16,510 by choosing to buy the option instead of the stock.

Also, it’s often advised that new options traders should only start out with small trading accounts.  It’s rare that a beginner will expose a great deal of money just starting.

Start small, learn, and then, perhaps, increase the risk.

Myth No. 3 — Options are too difficult to understand

Options simply require time to understand just like anything else.

When some of us started playing football for example, none of us walked on to the field and dominated.  It took patience and effort.  The same applies to learning the art of options trading.

If you know the difference between a put and a call, it’s not too difficult to understand strategies. Once you understand the basics, you can understand even more.

People think it takes years to learn options… that this trading is complicated and tough to learn. But it’s not true. Once understood, options are as easy as trading stocks.

No. 4. – 80% to 90% of options expire worthless

Not exactly… Only about 30% of all options, as explained by the CBOE, expire worthless. The idea that 85% of options expire worthless is from a famously flawed SEC study… which didn’t account for exiting options prior to their actual expiration.

Once you put the fears to rest, especially the most ridiculous, you stand to make a great deal of money with options at far less cost.