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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Madpinto who wrote (619)	2/3/1998 6:16:00 PM
From: Robert Graham	Respond to of 2241

I want to make a note here that actually this is IMO what happens when people pursue options with a relatively high premium compared to the "fair value" assigned by an options pricing model. They see the "big" premium and think this is where they want to be, because if it became "this" big, it will even get BIGGER. One of the many self-destructive approaches to options that in this case is based on greed. The opposite approach to this which is IMO just about as likely to lead to failure is those who pursue options based on their "cheap" price. These are the cheap out-of-the-money options. While the person using the first strategy is not taking in account inflated time premium and its ability to move the other direction irrespective of actual time, this latter approach ignores the effect of time erosion of the premium and other important elements to a successful option trade. This approach I think can be considered to be based on fear. This is not to say that what I have said here applies to the example that was cited in the earlier post which related to the option trader not taking into account time erosion on their premium that went down while the stock moved up. But the above two misguided approaches came to my mind in this discussion. Its simply a lack of understanding of how options work, or emotion based trades that are driven by greed or fear, that causes many if not most option players to lose. After all, with the volitility of many of the options compared to its underlying stock, this price action does attract the "speculator", and I mean this in a gambling sense. IMO it is much smarter to learn about how stock behaves and to be able to successfully trade stock before learnings how to trade options. But many want the "gimmie", the quick route to success and riches. Of course this need not apply to a CC writer. I will also make yet another bold statement here. I would say close to 9 out of 10 options players ends up losing out. IMO this is representative of the ratio of players that are there to gamble, but odly enough may not see themselves as a gambler. Out of all the markets I have seen people operate in, the options market is one that demonstrates how much out of touch a person can be with themselves and what they are about in the markets. The worst thing that can happen to a newcomer to options is for them to have initial success. So, learning how to trade involves a good part of learning about yourself besides leanring about the market and options. Second, it is very helpful to have a plan for each trade to keep you from your self-desctructive tendicies which all people have and keep from getting thrown around by the price action caused by the crowd. Third, a system is very important for at least the discapline and focus that it facilitates in the trader. This also can facilitate more reliable trading results. Also if you are here enamoured by money and counting the riches that are in store for you, you are definitely in the wrong place. Giving options to a person like this is like giving alchohol to an alcholohic. Where did this soap box I am standing on come from? ;) Bob Graham