Options Education: Feeling Pumped and Ready to Trade

Today’s post continues the discussion of what is necessary for an options education to be useful for the student. I’m imagining myself speaking with someone who operates a weekend seminar business or who offers $10,000 option classes:

Is it better to pump the student with energy? To set high expectations? To describe leverage in a manner that students immediately think about living the life of luxury? I prefer to tone down the rhetoric and explain the true risk of using leverage. The rookie must understand that trading skills are not developed overnight.

Is it better to explain that most people who attempt to become full time traders or earn a living by trading – fail to make it? Is it better to explain that learning to trade requires work and that certain personality types are far better suited to the profession than others? Yes to both.

The beginner must understand the task being undertaken. Why would you suggest that making money is a cinch and that everyone who takes your very expensive class will mint money? I get it, treating newbies as if they will be experts in a week may make them look up to you with awe, and it certainly lines your pockets with cash as that energy gets them to tell their friends – but when reality sets in, you will have taken their money and their dreams. How do you sleep at night?

Do we tell students that it’s not all fun and games. Sure, I enjoy making trades and working with positions, but the trader cannot ignore risk. Risk management is the name of the game. Forget that aspect of trading, and no matter how talented you are, there’s a significant chance of destroying the trading account. Do you do more than mention the words ‘risk management? Do you stress that topic and show examples, or do you only concentrate on the winning trades?

Position size is critical to risk management. One must never believe that a short string of successful trades means that the trader is ready to double size – because it has been so easy to make money. Do you warn students of the danger of allowing early success to breed overconfidence? Have they been taught that it is easy to get into trouble quickly when they leave the classroom filled with energy and high expectations?

Yes it it easy to make money with options. I have no doubt that you mention this as often as possible. The problem is that it is far easier to lose more than one earns. Does that even get a mention? Do you discuss the risk of ruin? The truth must not be hidden from the new trader.

So what do we tell the options rookie? The truth or the hype? You know where I stand.

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