Options trading is a high-risk, high-yield investment method. For some investors, it is very common for the market to open high and go low. In this case, options trading needs to pay attention to the following points to avoid losses and obtain potential gains. The following is a sharing of practical experience in options: my experience and bloody lessons. This article comes from: Option Sauce
Options have fascinated countless investors with their T+0 trading , low-cost short selling , and unique risk transfer functions . However, in reality, many customers have reported that it is very difficult to achieve profitability with options.
Here is a summary of common mistakes in options trading. If you can avoid these pitfalls, your profit probability will definitely increase significantly!
1. Will not stop loss
Many investors who are accustomed to trading options like to hang on to their losses when they encounter losses. This is very wrong!
Is it easier for a stock to rise 10% or 20%, or to rise 2 times, 4 times, or 9 times? Risks must be nipped in the bud. Long-term pain is worse than short-term pain. Only by avoiding the expansion of losses in time can you make money back in the future! What's more, options are naturally high-volatility derivatives. If you are not careful, you can lose 60% to 70%, and even lose 90% one day! If the loss is not stopped in time, it will be very difficult to rise back.
Loss occurs either because the market is wrong or you are wrong. If you are wrong, you must stop the loss in time, otherwise you will lose more and more. If the market is wrong, you can stop the loss in time and choose an underlying that is easier to recover, such as replacing deep out-of-the-money options with shallow out-of-the-money or real-value options.
2. Take advantage of others
Many investors like low-priced stocks when buying stocks, and they also like to pick up bargains when buying options. This is also very wrong! Options are non-linear financial instruments. The more out-of-the-money an option is, the less sensitive it is to changes in the underlying price. You can look at the real leverage of options. The real leverage of out-of-the-money options is even close to 0. Such options are very useful for actual combat. It means nothing.
3. Ignore the value of time
Options have expiration dates! Many investors may forget this when practicing. Remember: Time is the option seller's friend and the option buyer's enemy. Options are like ice in the sun. They are worth less one day and become useless paper when they expire.
Therefore, it is recommended that the buyer try to avoid holding it overnight . First, each day passes and the value of time is lost, especially for contracts that are close to expiration. Secondly, there is a lot of uncertainty overnight, especially with the recent market fluctuations. A high opening and a low opening range are very considerable:
4. Misunderstanding the price and value of options
Are so-called at-the-money options really “at-the-money”? Don’t just look at the exercise price, but also pay attention to the price of the option to grasp the true break-even point!
An option contract with an exercise price of 2900 does not mean that the index will recover its capital when the index rises to 2900, but that the option starts to become valuable when it reaches 2900. The real break-even point is to continue to increase by one premium based on 2900. .
Therefore, not only is it important to choose the right contract, but the opening price is also important. It is recommended to try to avoid buying options with high implied volatility , because the implied volatility is equivalent to the price-earnings ratio of the option. A drop in volatility = kill the valuation, and a drop in the underlying price = kill the fundamentals. When both fall at the same time, the decline in the option will be Very big!
This is my own experience and lessons learned about making money from options. I hope it will be helpful to you.
1. Be a buyer, not a seller, test the water with a small amount and do a good job in fund management and position control
2. Choose a contract with active trading. Do not choose a deep real value or deep virtual value contract. Choose one with a range of 700-1200 during the day. In volatile market conditions, choose a contract around 1,000-1,200. If you want to hold a position in the swing range for 1-3 days to double the market price, choose a contract with an attachment of 500-700 yuan.
3. When doing intraday trading, take profits in batches and strictly stop losses, and be safe (set a stop loss point when opening a position)
4. Don’t buy a contract with less than one week left before expiration date
5. Go in one direction, don’t do it in both directions, and avoid “slapping” you in the face back and forth.
6. Do not operate with the mentality of buying lows and chasing highs, and do not hold orders.