How to Conquer Your Fear of Options Trading
Options trading is often intimidating to beginners, but when used correctly, it can maximize your returns and protect your equity investments in the event of a market sell-off. The trick is learning a few key pieces of information that can help you navigate how it works. In this blog, we’ll discuss what you need to know to conquer your fear of options trading.
What Are Options?
Options are contracts that give the bearer the right (but not the obligation) to buy or sell the underlying asset at a specific price on or before a certain date. A stock option, for instance, typically represents 100 shares of an underlying stock. Options are an appealing option because they enhance an individual’s portfolio while hedging risk.
Options trading gives you the unique advantage of having 100 percent defined risk for most of the trades you can make. This means that, when you trade options, you have the opportunity to define how much you are willing to lose on a particular trade. This is unlike stocks because you’re not sure what could happen in the future – the company could file for bankruptcy, they could lose their product or market share, etc. Overnight, your stock could be worth dramatically less than when you bought it. With options, however, you know exactly how much you could make or lose by trading risk-defined strategies. Your risk of losing all of your money is fairly low as long as you make smart trades.
How to Overcome Your Fear of Trading
For most people, the fear of trading stems from having an emotional attachment to money. They fear losing it and ultimately make more decisions when it comes to trades because of this. You may fear losing money, being wrong about a decision, missing out on the right decision, or being a winner that turns into a loser.
With the right skills, you’ll be able to overcome each of these fears. Here are the strategies you should practice.
- Trade smaller
A lot of people talk themselves out of option trading because they don’t feel like they have enough money to get started. When compared to stock trading, options trading actually requires significantly less capital. Stock trading necessitates you purchasing the shares outright, so it can get expensive fast.
Take a big-name stock like Apple. To get a substantial position size in Apple, you’d have to spend quite a bit of money in stocks. However, using options, you could replicate this same position with 10-25% of the capital. So, options trading allows you to invest in a risk-defined way without the need for a lot of capital.
- Track your trade metrics
Sometimes winning traders become losers because they execute a trade that they haven’t tracked the metrics on. Ultimately, some strategies will work for you and others won’t. The best way to know if it does is by looking at the statistics and trade metrics. When you have the support of the trade metrics, you can trade confidently and leave your fear behind.
J&M Option Trading system provides you exceptional algorithm-identified trading alerts that will give you must-know information for ALL entries and exits. With our help, you can access all the information you need to know to make the best trades.
- Close the gap in your learning
One damaging belief in trading is that you’re not smart enough to trade options. People often fear that they are not capable of learning this industry. They want to try, but they don’t know where to start, and they feel inadequate in their own abilities.
The best thing you can do is start to close the gap in your learning. When you first begin, there will be a lot of different terms that sound intimidating. There may also be a lot of unfamiliar situations that make you feel like you’re out of your league. Keep pushing! Take the time to learn the knowledge and understand how to react to unknown situations.
J&M Option Trading can help. Regardless of your incoming level, we have innovative small account challenges that can help you practice your management skill set when it comes to options trading.
Are you interested in getting started with options trading? Don’t let your fears hold you back! J&M Option Trading provides education to members on sustainable and consistent options trading strategies. Get started with trading in the New Year! See our Membership Plans and Courses for more information.