- Generally a small investor buys a option suppose at 5 ,when it becomes 6 or 7 he immediately sells it, but never sells when it becomes 3, even wait for last minutes on the expiry day hoping some miracle to happen, thereby losing his entire investment.
- Normal stop-loss theory will not work in case of option. It depends on the value of underlying and the days left in expiry.
- Buying and selling options at right price is very important as there is no much liquidity in most of time, so premiums are arbitrary, generally fixed to take small investors for a ride.
- Never buy options when News broke by so called BREAKING NEWS on television, as premiums are jacked up much before releasing the news.
- Never invest your whole investible fund in a few option call hoping to multiply your capital overnight, as risk is equally high.
- Make disciplined investment in options at regular intervals with a little diversification.
- Now from January 2011 series option is now traded as European style instead of American style. Hence take position as per your risk appetite as exercise option is not available.
A2Z OF OPTION TRADING
(LIMITED RISK UNLIMITED PROFIT)
Market is euphoric up one day when all investing community gave targets like 6200,6300 and panic down the next day, again the same people gave target like 5800, 5500 and so on.
BELIEVE ME MY DEAR INVESTORS MARKET IS SUPREME. MOST OF THE TIME MARKET PROVED MOST RESPECTED BUSINESS CHANNELS, ANALYSTS AND INVESTMENT GURUS WRONG TIME AND AGAIN.
So predicting market ahead is a dangerous game. But one thing is certain there are always an investing opportunity in all market conditions. In unpredictable volatile times risk management is the most important. One better way to change the way you trade. Option trading will be one tool to play safe. But small investors’ do not understand the pros and cons of option trading. Sometime their bad past experience in option trading make them think against this.
If you believe in my little wisdom gained over past 26 years, small investors can make huge money in option trading. But one has to learn the golden rules of option trading.
The moral of the story: big money can be made with small capital in safest way of option trading.
ENJOY THE WEEKEND.
Posted by RESEARCH TEAM OF ASHOK SHARMA ON 1/07/2011 09:20:00 PM