It is easy for anyone who teaches others about how to use options to overlook the most beginnerish topics. It is difficult to recall just what each of us knew way back then, when we began to learn about options.
Some traders have good experience with markets in general because they have been buying and selling stock for years. Others are looking into options as their entrance into the investment world. To me it is obvious that teachers cannot give the same lessons to each group. Previous trading experience makes the learning curve easier to handle.
The following is a brief idea for anyone who wants to begin trading options, and who truly does not know where to begin:
Word of caution to the brand-new trader
You chose a broker and opened an account. Excellent.
If making your first trade excites you, please slow down. Here is an important lesson in just a few sentences:
If you have a strong bullish opinion on a specific stock, do not believe that all you have to do is buy some call options and that you will make money.
–First, stocks do not always rally when you expect them to do so.–
–Second, choosing an appropriate option to buy is a matter of skill. You cannot choose some cheap option at random and expect to make money.–
–Third, no matter how well your friend did of the one trade idea that he shared with you, the chances are high that he did not share his many losing trades.–
–Bottom line: It is very difficult to make money when buying options unless you have a proven track record — in writing — of just how skilled you are.
Options for Rookies advice: Learn first; trade later.