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Options Trading: “Getting the hang of it”

When visiting an online forum, I recently found a comment from an option rookie.  He mentioned that he has a little experience with options and that he is beginning to 'get the hang of it.' 

[To the portion of our audience that hails from abroad, the phrase is an idiom  meaning that he starting 'to understand how it works']

I must confess that I shuddered when reading that comment. It's true that study and practice increase one's skill level when trading options, but no one should be investing with real money before understanding what he/she is doing.

But there's more to it than that.  I lack additional details, but I believe what this investor was trying to say is that he was occasionally earning a profit from a trade, and not losing money on every trade. 

Most investors who enter the option arena begin by buying puts or calls, based on an opinion on which way the stock is going to move next. 

They lack the education to know which options to buy and which to avoid.  They don't understand anything about implied volatility or how to gauge whether the option being bought is fairly priced or too costly.  They don't fully understand that the passage of time can quickly destroy the value of their options.  Yet they trade, using real money.

"Beginning to get the hang of it" is just not enough.  I usually express that idea in these words:

Learn first.  Trade later.

***


Dr. Brett
always has something intelligent to add to any discussion:  "Trying to jump from initial learning
of trading skills to actual trading is like making the transition from
diagramming a pass play on the blackboard to running it in a football
game."

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