5 Options Trading Myths
Options are probably one of the most misunderstood investment opportunities in the world. To make matters worse, those who understand make it sound like rocket science. This has kept many people away from the trade and made others lose a lot of money because of a lack of proper knowledge about options.
That’s probably why so many myths about options exist today. Options myths started way back in 1635 when some investors from Dutch purchased call options on exotic tulips. It is said that some people reaped big without even owing the beautiful tulips. A few years later, the prices of tulips collapsed and so did the Dutch economy. According to the experts at Money Morning, “When you buy options, you’re not buying shares of a company. You’re paying for the right to buy (or sell) shares at a certain price on a certain date. Because you’re buying the right to buy a stock, options trade for pennies on the dollar relative to
the share price of the stock.”
We now live in an enlightened age where you can make money trading options. Although there’s a lot of information and education in modern society, there still exist myths about options.
Below are 5 common myths about options:
- It is too risky to trade options
This myth has existed for a very long time simply because there are people who have taken advantage of options and portrayed them in a bad light. In any case, options were created to serve as risk-reduction tools. They are basically used to hedge risk. It is, therefore, not true to say that options are too risky for investors. slotxo
Options can only be risky if they are traded by people who don’t understand how they work. This applies to any type of investment.
- It is difficult to understand options:
It is not true that options are hard to understand the way most people tend to put them. Every trader has a right to purchase and sell underlying stocks at a specified price. There’s nothing difficult to understand because there are basically two options namely; call and put. It’s all about looking for existing opportunities and taking advantage of them.
- It’s easy to make money through option trading:
It is ironic that others think trading options is difficult, there are others who think it’s a simple affair. While trading options is not difficult, it is also not very easy. The first thing you need to do is understand the direction of the market.
Most people often believe they can do this but the truth is that few can correctly predict the market direction. Options have a very limited lifespan and as soon as they have expired, they become useless. This XRP Buying Guide will tell you what to expect as part of the process and what else you will need to do after buying XRP.
Options are a major cause of stock market crashes:
Every time there’s a stock market crash, options traders are the ones who are always blamed. But the truth is that options do not cause mortgage problems or credit default swaps. Stock market crashes are usually caused by selfish traders and bankers who take higher risks than expected.
This is false because both sellers and buyers can make money from options trading. If profits were made by sellers only, then there would be no buyers and without buyers, there would be no market.
In general, anyone can make money trading options. Unfortunately, there are myths that still mislead some people.