The Biggest Myths About Options

I trade options every single day because they are the best product for a retail trader to take advantage of.

Options offer built-in risk management dynamics and allow for you to use leverage to your advantage. Most people don’t understand just how big of a benefit this is.

They think about options as a risky product that only professional traders should be using.

This is a massive misconception.

That’s why I want to break down the biggest myths about options for you and explain why they aren’t a product you should be afraid of but, one you should be embracing.

Options Myth #1: Options Are Riskier Than Stock

This is easily the biggest options myth out there. Most people who are unfamiliar with options trading will tell you that trading options is inherently more risky than trading stock.

It is true that options are leverage products but that doesn’t make them more risky. In fact, it means the opposite.

A single options contract gives the buyer the right to buy or sell 100 shares of the underlying stock. This means that you can control a much larger position with less upfront capital. This means that your reward to risk ratios are almost always going to be higher in options.

Sure, people that don’t understand how this leverage works might expose themselves to more risk than they intended, but if you understand how to manage options risk properly you can use leverage to profit more and riskless.

This is easily the biggest benefit of options trading.

Options Myth #2: Options Are Too Complicated

Derivatives are a little more complicated than their underlying assets but anyone that understands how to trade stocks would be able to tackle options.

The options market has plenty of unique dynamics that you need to master before trading them but there is a wealth of free resources online that can help you do this.
Read up on options trading and once you’ve nailed the concept move on to trading a sim account.