Chapter 11: Ensuring Success with Options Trading

There is no way to guarantee that you are going to be successful 100% of the time with any type of trading, especially options trading. The idea behind options trading is that it is slightly riskier than any other type of trading, but on the other hand, if you do it the right way, you will witness some of the largest returns you will ever see across any form of trading. The general idea in the world of finance is that the amount of risk is correlative to the amount of reward. This is true even with options trading. It may be hard to figure out the right way to do it but following each of these tips will guarantee that you have given yourself a chance to make money from the trades that you have initiated.

Build Capital

Before you start investing in any way, you need to build up capital. You cannot expect to have good returns on an investment if it is just a small amount. While you may be very proud of yourself for having 100 dollars in your bank account, the bad news is that this is just not enough to get started with investing. If you want to be able to even come close to purchasing worthwhile options contracts, you will need far above $1,000 to get started. You can get cheaper ones... but the thing is that those contracts are cheap for a reason.

Keep saving, and you will, eventually, have the money that you need to invest. By the way, are you using a high-interest savings account to save that money? You should be!

Wise Investment

No matter what type of options trade you are going to get involved in, you need to make sure that the investment is one that makes sense. Do all of the required research on the company before you invest your money into it. If you don’t do this, you will risk not getting the return that you want from the investment. An investment is an investment. Why would you invest into something that you know nothing about? You will probably struggle at first when it comes to all of the different aspects of options trading, and you may find starting out that it’s even a bit overwhelming. However, always try your best and keep a close eye on the different market approaches to trading. Wisdom comes solely from experience.

Take (Some) Risks

There are always going to be risks with trading. Whether they are risks dealing directly with your capital supply or risks dealing more specifically with your different investitures is dependent upon how good of a trader you are. Be sure that you work hard to take the right kind of risks and that you are taking the right kind of chances. You should learn what you are comfortable with when it comes to the risks that you are going to take. How much do the benefits outweigh the risk? Is the benefit big enough that it will be worth it if you lose the money that you put into the investment? If your answer is no, you probably should not take the risk.

Adjust Your Positioning

If you find that you are struggling to get the positioning right with your investment, you should change it. This does not mean that you will make a huge switch from a long position to a short position or the other way around, but it does mean that you will need to make sure that you are going to get the best return possible from wherever you are. Take specific and special pains to write down how you are performing from both the short and long positions. Consider the results. Do you consistently perform badly in the long position? Look at what’s happening in those trades – every aspect – and see where things are going wrong. In the end, if you are finding that your position isn’t working, just try your best to change it and to make sure that you will be able to include different options with the positions that you initially set out to take.

Re-Invest the Money

When you make money, you need to reinvest that money. With the money just sitting there, you are not going to be able to earn more on it. Since you have the money in the first place, take the smallest amount of profit off of it to pay yourself and then reinvest the rest of the money so that you can, quite simply, use your profits in order to turn more profits.

Broker Experience

When you are shopping for a broker, make sure that the broker who you are going to work with has experience in options trading. There may be brokers who have years of experience on the open stock exchange, but they may not have any idea about the options trading sector. This can mean different things for different people, but it is always a good idea to make sure that you get pertinent and up-to-date information from your broker. If your broker does have experience with options trading, make sure that it is the kind of experience that you are looking for and that it is something that you can use to make your trading options more professional. This is especially important if you have never traded before and if you want to get the best trading profits possible. Does your broker have a positive history with the options trading sector? Do what you can to find out.

Don’t Put All Your Eggs In One Basket

Make sure that you are trying different types of options trades. If you have a lot of money to invest, don’t invest it all in one type of options trading. Instead, invest it in several different options contracts that seem like they would be a good fit for your portfolio. Always do your best to ensure that you are choosing good options contracts and that the trades that you have are ones that will make the most sense for you and your portfolio.

Consider the Payout

You need to keep the end game in mind each time that you try to invest in different things. The end game, of course, is the payout that you are going to be able to get when you exercise an options contract. If you are looking for different options that are within your trading budget, you will need to make sure that you are doing everything that you can to include these new potential option contracts.

Try Something New

Trying new things is a great way to ensure that you are going to be able to get the highest profit possible. If you are not aware of the different profits that come from different trade options, you – quite simply – are just going to remain inexperienced and won’t ever become a masterful options trader. Each time that you decide to invest again, take a look around. Take into account all of the information available to you about every single stock on the various markets that you’re looking at.