Why do people trade in options and lose money ?

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Old Jul 12, 2012, 5:20pm   #43
 
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Re: Why do people trade in options and lose money ?

I don't need an opinion on the market,as I can use volatility and time decay to give an edge. I do however have a lot of opinions on most things, and it does sicken me to see governments placing wild bets on an absurdly infantile picture of economies. However there is trading,which I do for profit,and there is politics, for which,ironically a lot of rubbish people get paid.
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Old Jul 14, 2012, 10:10pm   #44
 
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Re: Why do people trade in options and lose money ?

Most people loose money in option trading b/c they misjudge the direction and magnitute of the underling asset (stock, commodity,etc.). Then there's time decay, then there's commisions, then there's also earnigs announcements, and also market moving indicatiors like jobs reports, FOMC announcements that a trader might not be cognizant of and loose money because of that. KEY: The goal of the trade is to be in the money (ITM). If not going to be ITM. Then it will be reflectet in the sale price of the option; for a loss.
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Old Jul 14, 2012, 11:50pm   #45
 
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Originally Posted by Prairie Viewer View Post
Most people loose money in option trading b/c they misjudge the direction and magnitute of the underling asset (stock, commodity,etc.). Then there's time decay, then there's commisions, then there's also earnigs announcements, and also market moving indicatiors like jobs reports, FOMC announcements that a trader might not be cognizant of and loose money because of that. KEY: The goal of the trade is to be in the money (ITM). If not going to be ITM. Then it will be reflectet in the sale price of the option; for a loss.
Option traders pay the premium up front. It's an option to buy the underlying instrument at the set price, it's not an obligation. Hence if the underlying asset goes to crap they can let the option expire without exercising it, leaving them short the premium. I don't know much about option trading, although I know enough to know it's not representative of your post. Feel free to correct me if I am wrong
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Old Jul 22, 2012, 10:08pm   #46
 
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Re: Why do people trade in options and lose money ?

Options are like any derivative that move along with the underlying value of a stock / index or whatever. I do not see any difference with any other derivative. The point is that the underlying value is important and that you need to 'play' with the time you got left untill they expire. The fun of the game is that both play a role. When you master this you can find pretty awesome opportunities.

Buying an option that expires the same day can make you a great profit when your trading strategy works. So if you are pretty sure that the market is gonna sell off before the put option is gonna expire, an option that's worth a few cents can go up alot.

And you can have great return on a little investment. When it doesn't go the way you want, you just sell them at the stoploss you have provided yourself before you entered the trade.

You don't need margin for options and if you don't work with a stoploss you can't lose more than the money you put in the trade.

Last edited by phyzelor; Jul 23, 2012 at 1:58am.
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Old Jul 25, 2012, 10:54am   #47
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Re: Why do people trade in options and lose money ?

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whats your beef? you are a 'legendary member' so lets see what value you have to add if any? is this how you got over 8000 posts? do you even trade? wait, i know, you trade 1 or 2 spy option contracts and think you are a trading god.
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Old Jul 25, 2012, 10:55am   #48
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Re: Why do people trade in options and lose money ?

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If I am not mistaken, and please correct me if I am wrong because I can't be @rsed to give much energy on gaining knowledge on it. While this instrument is traded for profit, isn't it mostly used to offset risk in the futures market for buyers of an underlying commodity that are not speculating for profit from trading the instrument.
exactly
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Old Aug 7, 2012, 8:56am   #49
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If I am not mistaken, and please correct me if I am wrong because I can't be @rsed to give much energy on gaining knowledge on it. While this instrument is traded for profit, isn't it mostly used to offset risk in the futures market for buyers of an underlying commodity that are not speculating for profit from trading the instrument.
Yes You are 100% right
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