Why Do Most Options Traders Lose Money?

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Introduction:

It's likely that you've lost money when trading options.

Consider an instance when you lost money when trading options. What went wrong?

Did you start at the top and work your way down? Did you leave too soon?

It can happen to anyone. When I initially started trading options, it happened to me quite often.

I'd put long at the top and short at the bottom of the list.

I'm sure I'm not the only one that feels this way.

On Wall Street, it's common knowledge that 90 percent of option traders lose money.

But why is that?

There are numerous reasons why 90% of option traders lose. Let's take a look at a couple of them.

1. Greed

We've been in that situation before. It feels terrific to be winning in our options trade!

The next thing you know, you're up a ridiculous amount of money. So, what exactly do you do?

You say, "I'll hold it longer," and you do, at least 90% of the time.

What happens the next day? Bam! Overnight, the option has lost its value.

What happened here, exactly? One answer is greed. While you could and the trade went against you, you did not collect profits when you were in a significant profit. This is something that the majority of option traders, including myself, experience.

Solution

When your contracts reach a particular percentage of value, lock in profits. This is because money might flow out of an option at any time of day or night, and you want to get out as soon as possible to find a new opportunity. Never invest all of your money into a single trade. At MbcTrader provides profitable entry and exit points. Every day, we have a plenty of new opportunities!

2. Using an Expiry Date that is too soon

I know a lot of you want to get rich quick, and while that is feasible with options trading (don't get me wrong, it is), it is not achievable with weeklies!

What exactly are weeklies?

Weeklies are option contracts that have a 7-day expiration date. It is not advised that you play them.

These contracts are extremely volatile, and they are frequently make-or-break trades.

Although you may win large in some weeklies, you will find that playing weekly expiring contracts will cost you the majority of your gains in the long term.

Traders who trade weekly futures are solely concerned with the near term. In the long run, this will not work.

Solution

Make sure you have at least 30 days before your contracts expire. This provides you with enough time to weather any short-term price volatility. This is something that our service can assist you with.

3. They try and sell the market short.

For almost a century, the stock market has been rising. That's a 100-year upward trend. Every year, the stock market rises by an average of 9%!

85 percent of the time, stocks rise, and 15% of the time, they fall. If you try to play the 15 percent instead of the 85 percent, you will lose more of your options transactions! Seriously!

Solution

Actually, there is a simple answer to this! In no manner, shape, or form, buy puts or short the market. Play longs and you'll find that you're winning the majority of your trades! It took me nearly two years to figure out this secret. Learn more about our Options expertise by subscribing to our notifications service.

4. They take on too much risk in a single trade.

Even if the stock market rises 85 percent of the time, short-term day-to-day prices are difficult to anticipate. You can lose even if you are confident about a trade.

Trades in which you have confidence are extremely risky. Traders that are confident put more of their money on the line! It happens to all losers in the market.

Solution

No matter how certain you are in the direction, never put all of your money into a single option trade. Make a trade budget and stick to it!

5. They purchase when volatility reaches a local high.

It's possible that a stock's price will rise! Woohoo! You believe it is now time to enter. Sure, you'll get in! Bam! The value of the options plummets, but the price remains unchanged.

What happened?

You purchased at the top of the premium or at an expiration date that was too soon. Even if the price changes, if you buy at the top of a relative high or too close to the expiry, your option can quickly devalue!

Solution

When there is a price drop, buy in and buy options with a longer expiration date. This lowers your premiums and allows you to enter at a lower cost, boosting your total return on investment. Over time, this adds up to a lot of money.

Conclusion

If followed, the strategies described here will most likely save readers millions of dollars in options trading. These are just a few of the many options available to you right now.

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