Options 101: A Beginner's Guide to Trading Options in the Stock Market by Steve Burns & Holly Burns

Author:Steve Burns & Holly Burns [Burns, Steve]
Language: eng
Format: mobi
Publisher: Stolly Media, LLC
Published: 2016-12-14T00:00:00+00:00

Here are the biggest and most common pitfalls that new option traders encounter.

New option traders buy far out of the money options without understanding how the odds are stacked against them. If the Delta is only .10 on your option, then you have less than a 1 in 10 chance of your option expiring in the money Even if you get a move in your favor, your far out of the money option won’t increase in value until the Delta expands enough to overcome the time decay.

It takes a large move in price to increase the value of out of the money options. The odds of it expiring in the money must increase enough to drive up the contract price. New option traders often become frustrated when price moves in their favor and their out of the money option goes down in value. In most instances this is gambling and not trading. Always try to be the casino and not the gambler. Options with at least a .25 Delta will increase your odds to 1 in 4 being able to go in the money These can grow quickly in price as the Delta expands more easily with a move in your favor.

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