If you spend as much time in the markets as I have, you’ll notice that not all trading is viewed equally.
Financial news networks, journalists, and pundits are constantly heaping praise on long-term institutional investors, like Warren Buffett or Ray Dalio…
And while these guys deserve their praise, the media often gives day traders a bad rap, especially retail. (Think about how meme stock traders were characterized in comparison to the ‘smart money’ hedge funds they battled in 2021.)
This stigma contributes to the misconception that trading is a glorified form of casino gambling. And no market niche experiences this backlash more than options traders…
A lot of market participants take an elitist stance against buyers of options contracts (like you and me).
They think buying options is futile and that options traders have little to no chance of long-term success.
But this is false. For a few examples, click here to see my breakdown of the five greatest options trades of all time.
Plus, just look at me. I’ve made millions in the options market by simply buying and selling calls and puts.
With that in mind, let’s debunk three common options-trading myths (and explain why you shouldn’t pay attention to any of them)…
Myth #1: You can’t win as an options trader because contracts are depreciating assets…
The first myth is that since options contracts are depreciating assets, they’re impossible to profit with…
While it’s true that options contracts are always losing their time value (and often expire worthless), it’s false that you can’t make money trading them.
Every type of trading carries risk, and the possibility of losing money exists with any investment.
(WARNING: if you’re holding your contracts to expiration, you’re waiting way too long to take profits or cut losses.)
Think about it … Most companies fail. Most artists fail. Most athletes fail.
Are you familiar with this trading “loophole?”
Are you familiar with the “loophole” that helps small accounts grow exponentially?
No, it doesn’t have anything to do with penny stocks or crypto…
And this strategy works regardless of whether the markets are up OR down…
This little-known options “loophole” is something you can use to grow your trading account right now…
Does this mean no one should ever pick up a baseball bat or start a business? Of course not!
Just because an endeavor has a low success rate doesn’t mean it’s not worth pursuing. If that were true, the world wouldn’t contain a single artistic masterpiece in any creative field.
Options trading presents a high level of risk, but it also offers the potential for massive rewards.
In my view, this is a pretty even trade-off. With experience and focus, options traders can work to minimize their risk by selecting contracts that fit well into their overall strategy.
Speaking of risk, let’s talk about myth #2…
Myth #2: You’ll lose money faster trading options vs. shares…
Next, I’ll hear people say options trading carries the potential to lose money faster than trading shares…
This argument is debatable, to say the least…
Can you lose a lot of money quickly by irresponsibly trading weekly contracts? Absolutely…
But you could also lose a small fortune trading penny stocks. Trading any asset involves a certain level of risk.
And with higher (theoretical) risk comes higher potential rewards…
Although short-term options contracts carry a high level of risk relatively, they also present the opportunity for ridiculous gains that can’t generally be achieved by trading traditional stocks.
For example, the 530% overnight gains from my biggest trade of all time — trading puts on the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) — would not have been possible through shorting common shares.
Why? Because the most you can make shorting common shares is 100% and that’s if you cover at $0 … not likely.
On the other hand, options trading is more specific than stock trading. Not only do you have to pick the right underlying stock, but you must also be correct on the timing and direction of the move.
And if you can nail all of these aspects of the trade, the options market can reward you far more than those who simply buy stocks low and sell high.
Myth #3: Options trading is too complex…
Finally, many people are intimidated by options trading because of the complexity involved. They subscribe to the myth that strike prices, expiration dates, and options chains are too complex to grasp.
Unlike stock trading, options trading involves a variety of factors that can influence the value of a contract, including volume, open interest, implied volatility, and ‘the greeks.’
And while this complexity can be overwhelming at first, there’s nothing to be afraid of. All you have to do is develop strong study habits.
After all, that’s why I work so hard hosting webinars, creating video lessons, and writing these letters to you — I want to help make your trading journey easier.
I remember what it was like to first approach the options market as a newbie. Luckily, I had the guidance of Tim Sykes to help me through my early days in the markets…
If I hadn’t dove headfirst into Sykes’ Trading Challenge and transcribed all of his video lessons and webinars three times each … I wouldn’t be where I am today.
That’s why I have no sympathy for those who say options trading is too complex. I worked my butt off to learn the skills I now possess. Suggesting it should be easy to become an incredible trader is actually kind of insulting!
Again, anything that’s truly worth mastering takes hard work, dedication, and perseverance.
As long as you’re not lazy, there’s no reason that options trading is too complex for you to learn.
Final Thoughts
Trading isn’t for everyone — and options trading is reserved for even less.
But if you’re ready to work harder than your peers, amazing things can happen.
So, don’t let a few myths stop you from reaching your potential!
