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Option Trading Education


Why Most Option Traders Lose

A lot of people are attracted by options. The reason is that these derivatives mostly can profit with three digit percentages within days. Whenever there is a lot of money to earn there you can find a lot of traders trying to get rich quick.

But the sad truth is that most stock option traders who are there for the fast buck are losing money instead of earning money. A whopping 80% of all option buyers are losing money.

It's very simple: If you don't know the principles of how financial options work you will sooner or later lose money in the options markets. It's not enough to know that options are also called derivatives because the value of a stock option depends on its underlying, in most cases a stock. The underlying is a security which the option is based on.

There are some things with options that most traders or investors don't know, for example that option selling is possible without having bought one. And other option strategies which involve the usage of both calls and puts at the same time are also possible.

Most option traders also lose money as a special feature of options is not really understood: The decay of time value. Every option unlike a stock has a limited span of life which is called expiration date. After time proceeds it happens quite often that the underlying remains unchanged in its value but the option of this underlying has lost a decent amount. Why?

Because the price or premium of an option consists of its inner value plus the time value. Every day that is passing away the option, no matter what happens, loses a certain percentage of its time value. And the time value can be the only part of the total price when you buy out of the money options.

When you have understood this matter then you know much more than most other option traders or option investors.

Now its up to you if you want to learn more about how options work in certain market conditions.

Although options are quite risky there are option strategies which enable you to lower your risk. To warn you upfront: Buying options is the most risky strategy of option trading. So, don't listen to any option master, educate yourself to an option expert and decide which option strategies are the best for you.