New Trader looking for answers

[No Risk Trader]

Hmmm...without correcting the math. Using what you have:

100 shares of a a $20 stock would cost you $2000.

The options at a $1.00 for that same 100 shares of the $20 stock cost $100(Premium)

$2000 vs $100.....where are the hairs to split regarding cost?

Options allow you to reduce you initial risk on a trade(see above), if your $20 stock,(you picked it for whatever reason and thought it would rise), went to zero and you where long the stock you would have lost $2000. Same scenario if you owned the Option you loses would be capped at....$100!

Options my friend is Chess....not checkers!

Illiquid?? Only SPY??

Unlike stocks you have an indication of Open Interest in every contract and volume. If you buy a stock you don't know how many sellers there are at the price you want to pay or vice versa, if you are a seller, you don't know how many buyers their are interested in buying at your price. You do with Options.

Any transactional fees should be sourced for best pricing and execution.

You did previously say you have to know what you are doing....

That...is correct.



"....you have $20 stock with ATM(at the money) at 1.00. ($100 premium)..."
"...100 shares of that is $2000..."

"...For the shares, 1% would = $20. ...{

"...But for the options, $100 = 1% of $10,000...."

"... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost...."

"...You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options....".
--
Options are still 1 contract = 100 shares.

Let's say you have a $20 stock with ATM options listed at $1 ($100 premium), which would normally be considered cheap. 100 shares of that is $2000, but the options are 1/10th the cost. Now let's assume our risk on a trade is 1%, and that (per what HWSteele mentioned) our stop loss for options is the premium.

For the shares, 1% would = $20.

But for the options, $100 = 1% of $10,000.

... Not the same deal at all. They all say that options are cheaper than shares, but in reality they come with a cost.

You could say I'm splitting hairs here, but I don't think I am. In reality, you need a lot of money to get into options. I would easily say $10k is the bare minimum to not lose your shirt being undercapitalized. Options are also quite illiquid outside of the most heavily traded assets such as SPY, so the premium = stop loss assumption is not unfair. You see figures like 4 billion contracts traded every year or something, though reality is that most of e'm are done through SPY. The spreads are otherwise horrendous in my experience.[/QUOTE]

 

[hwsteele]

t2w guys.... please get on the ball with this stuff.
this forum is so infested with cr@p scammers/spammers/vendors it's almost a waste of time tryign to read through the latest posts...they're all new posts with this same sh1t. It's beyond frustrating. It makes you want to say why bother?

Peter

Don't forget to red flag the posts from spammers so it shows up on the mods lists.

 

[peakoil]

Well I can't say because I have no idea what the test would be in place! But if you and a lot of other traders are successful then you'd have no problem passing some sort of accreditation would you?

re your passing some sort of accreditation, point: would you agree that profit, for those who are successful, beats any other form of accreditation?

It's not meant to be a punishment, more to stop the poor souls who see Forex as a get rich scheme and blow a few K in a matter of weeks either through trading or scams because they haven't properly learnt how to trade and taken the time to learn all the potential pitfalls etc. I'm sure a lot of people quite enjoy having the cannon fodder pouring money into the markets, and you could say it's their own fault, but then you could also say it's far too unregulated. A bit of education never hurt anyone :smart:

re: "A bit of education never hurt anyone"

When I started over a decade ago, I lost money. Then again, a good education rarely comes cheaply. But I never stopped learning.

And eventually, all that learning started to be of good use.

For the OP: There will never be a time when the majority are profitable. Likewise, when reading this thread remember that if around 10% are profitable, what percentage of responders to your post do you think are profitable too? That in itself should be a warning to you. In any event, you'll likely lose for several years before things start to change (*if* they are to change...) so starting *small*, despite your comfortable bankroll, as another has suggested, is a very worthwhile starting strategy.

 

[rsh01]

You really do have to know what you're doing when trading options. Gotta learn about those greeks.

hmm, so a positional stock trader who writes covered calls on his stock needs to know about the greeks, despite the fact that the greeks will not influence his decision to enter or exit (his decision to enter was cos he has the underlying and perhaps a view that the stock will go sideways/little lower in short term)?

i am not advocating you do not learn the greeks if this is your strategy, i am just saying i am sure there are people trading these who do not know the greeks, and if they did then it wld make little difference on them writing these calls.

 

[hwsteele]

hmm, so a positional stock trader who writes covered calls on his stock needs to know about the greeks, despite the fact that the greeks will not influence his decision to enter or exit (his decision to enter was cos he has the underlying and perhaps a view that the stock will go sideways/little lower in short term)?

i am not advocating you do not learn the greeks if this is your strategy, i am just saying i am sure there are people trading these who do not know the greeks, and if they did then it wld make little difference on them writing these calls.

Options expire right? Part of writing those calls is knowing that expiration happens and at what time. Knowing that the option will lose value over time and expire worthless is part of the greek understanding. You may not know you know some greek speak, but you do.
Learning about the greeks can only help.