Options trading and Gambling
The recent global market crisis caused a lot of options traders to lose their fortune. Increasingly, there are people who are referring to options trading or derivatives superslotv2 trading most importantly as gaming. This is probably due to the many choices traders who had their positions go down to zero, taking their whole account with them.
Did the stock investors do any benefit?
Many pensions and individuals had big positions on GM before the ’08 crisis commenced and fully will do hold it as “investment” rather than rumours. But look at where GM is now… barely a dollar. Didn’t those “investors” lose their shirt as well? Shouldn’t trading and investing or investing in stocks be gaming as well?
So what is gaming?
In essence, putting money into something hoping that it will do well when you can do nothing about how the price movement of the particular thing moves is gaming. Depending on an uncertain future outcome in order to make a profit or loss is gaming! That includes stock “investment”, options trading, futures trading, warrants etc. How different are those from horse betters who “analyze” the performance of horses and then place their proposition wagers waiting for an outcome?
Accepting the fact that gambling on on an uncertain future outcome with money on the line is GAMING is the beginning of trading and investing.
How did high position professional poker players make a profession and a living out of a “Gambling” game? The real secret is risk management. Risk management is what takes options trading out of the realm of gaming into the realm of investing.
The sweetness of options trading is that risk can be hedged and position can be sized to any risk management needs. To take the simplest example, don’t buy more call options or put options than the amount of money you are willing to lose! See? Options traders who cannot accept the fact that trying to predict future outcome is gaming, who like to think in terms of “sure win”, will put each of their money into a single position and lose their shirt. And then cry about options trading being gaming. Yes, options trading IS gaming in the sense that future outcome cannot be expected! It is proper risk management that takes options trading out of the realm of gaming and into the realm of investing and trading.
In fact, with proper risk management, options trading can be much less of a gamble than buying stocks itself!
This is because you can structure options strategies that profit in more than just one direction whereas if you buy stocks, you make money when the stock increases! With the possibility of profiting in more than one direction, odds of winning is greatly enhanced, risk decreases and the trade becomes more of an investment when compared to a gamble! See?
For example, a Call Proportion Spread allows me to profit when the stock decreases, stay at standstill or up to pre-determined price! In all 3 directions! Now, how is that gaming now that the future outcome is no longer that important to earnings? With a Call Proportion Spread, I won’t have to be exactly correct on where the stock is going, because it is erratic in the first place, and still make money! See?
Also, due to leverage granted by call and put options, I could control the profit on more stocks using lesser money! By using only money I am ready lose in one trade, I could reduce risk and yet control the profit on stocks which will take a lot more money to overpower!
Now, options trading is not magic. Options trading can be risky without a comprehensive understanding of how it works and how each options strategies work but once you reach that level of competence, options trading becomes more trading and investing than gaming with the proper risk management strategies in place. The I am trying to get across to you in this article is this: Most things depends on an uncertain future outcome is gaming and that includes options trading and stock investing. However, with proper risk management and hedging strategies, options trading can become not so dependent on the accuracy into the future outcome than stock investing, thereby becoming more of an investment than gamble.