More Clarification on Working the Down Side of the Market

Thanks to reader Ftrsman who writes in with further clarification about working the down side of the market! 

ftrsman

Hey, Denise, great site, thanks so sharing so freely! Didn’t think I’d ever write in, but I have to say something about trading options. While put options are a way to make $ if something goes down, and betterdaysahead is right, technically, saying ‘limited risk with maximum potential”‘, that’s making it sound a little too good. Over 95% of regular investors lose every cent they ever put into an options contract, so their ‘limited risk’ keeps happening over and over. (The minute you buy an options contract it starts losing value, because it has an expiration date, and few non-pros understand when an option is fairly priced to begin with). Another poster is right in saying it should be left to professionals.

Right now the options market is really screwy, because people are paying for fear and the normal parameters of price/time/volatility just aren’t working (IOW, the move has to be so big, and relatively fast, before the risk/reward pays off – it’s not simple like ‘the dow goes down 5%, your option goes up 5 or 10 or 20%. ‘ ). A lot of pro options traders are staying on the sidelines because pricing is so screwed right now. Besides, any pro will tell you that a newbie who wants to trade options oughta not just take a basic course online or wherever but spend a year or more ‘paper trading’, meaning, practicing on paper, and if they start doing that right now, a year from now the ‘big move’ may be over (but the next year may give a good education). If they really want to, s/he could give some $ to a pro options trader, but you usually have to start with $50K-100K, and I don’t know if I’d be trying someone new out right now. Don’t mean to be a joykill, but don’t want to see anyone hurt. There’s nothing wrong with cash.