I have been exchanging emails with a rookie option trader, and I must confess it breaks my heart. I'm not publishing these excerpts from our correspondence to poke fun at him. On the contrary. He is making an effort to learn and I'm doing what I can to provide encouragement and good guidance, but his current situation leaves me bewildered and upset.
I am reproducing a variety of excerpts from our exchange with the hope that it will discourage anyone from believing that trading options is a simple game and an easy pathway to getting rick quickly.
Options are easy to understand. But trading them requires a substantial understanding of how option prices move up and down; what must happen to earn a profit; the realization that losses occur more frequently than you may have been told by some eager friend; and most importantly, that options are not bought or sold – and then ignored. You must pay attention to positions and carefully manage risk.
I don't know a lot about options but I lost a large
amount of money (for me its very huge, but its not for you).
I just read about a strategy (it looks easy and safe) – the iron condor.
My goal is to have monthly income from options and I want to have a
simple strategy, with a trading plan that is just easy
My research shows that iron condor has a good probability of winning but
many think that if you lose you will lose the entire year's profits. Is it true?
I think I will use iron condors for my monthly
Your [previous] statement that I will take losses part of the time is a big eye-opener. Before
that, I thought this strategy wins all the time.
I explained that it's not 'easy.' Nor is there a guaranteed monthly income. Is it possible for anyone to believe that this, or any, strategy wins all the time?
You never use technical analysis? How do you find your trades? Or do you just teach and never trade?
I understand that technical analysis is beloved by many and useful for some. But to believe that one can possibly trade without using it is beyond my comprehension.
If everyone believed that a stock gave a buy signal, and if everyone wanted to buy the shares, who would sell them? Just that ought to be enough to convince him that the minority use technical analysis for trade decisions.
I know that people trade options with no idea of what they are doing. Yet when I find evidence that it's true, it bothers me.