Experiences With Trading Options

I am relatively new to options trading, starting in April 2020 (can see my performance for details).

Coffee on Paper

I didn't do paper trading and jumped straight in. However, I got some bad experiences that I would like to share.

  • No idea what to put as a limit price
    • In multi-leg strategies (was -ve credit good or bad), I had 3 trades where I screwed up the debit/credit and end up in a sure-lose situation at expiry (anyway answer is to get as much as in credit for your spread as possible)
    • I also made the same mistake when selling/closing my position. I was also thinking whether the credit is good/bad when reversed. I end up choosing the market rate and realize again, credit is good.
  • So my experience is, always look for credit in buy or sell.

One was Youtuber investor, Dave Lee, while talking about Tesla, answered a query which indicated that he still has hobby accounts in trading. However, for his long-term 10x type of investments, he felt it is risky and not worth his time.

I will also share another experience from Pramod Kumar. He started trading in 2008. Based on market direction, he bought NIFTY calls or puts. In 2008, the market crashed all over the world, and it was a year of learning for most of the options traders. He started with positional and day trades and made good money in a few trades. He lost some money in a few trades as well. So, overall in 2009, he was able to make only small gains. From 2010 to onwards, he changed his trading style, and now he is only trading options and futures. 

He Divided His Experience into Three Categories

He shared his experience, and he divided it into three categories, such as:

  • Options Bought For Near Month Expiry
  • In options trading, you can only trade options for the current month. You can trade next month’s options as well, but these are so thin, so, it doesn’t make sense to get into such trade. 

    Advantages

    When you have time in hand, you can predict the movement of direction, and it gives you a good profit. When prices go down, you would have less loss as compared to that stock that you have bought or sold. In options trading, less money is involved as compared to Future Segment. When the price movements are significant, you can make significant profits. 

    Disadvantages

    When the expiry date is near, prices erode quickly. You wouldn’t be able to make profits even you are in the right direction because the time decay will eat your entire premium. You can’t lose more than 100%, but you can gain a profit of more than 100%. 

  • Options Bought Near To Expiry
  • These trades are not safe and riskier because time is always going away from you. However, if the price moves in your direction, you can make massive profits. The chances are that you can lose your entire premium. 

  • Options Bought A Day Before Expiry OR The Expiry Day
  • In this case, you have an equal chance of being right or wrong at the same time. You can either lose or gain 100%. So, the trader can only take a position, and then he should wait for the best. It is never a smooth journey for him. He had lots of losses during this journey. But he never gives up and has trust in his trading method. He was able to recover most of the losses. 

    Conclusion

    Options trading is good for traders. It gives you leverage to make big profits with small stakes. Options trading is much better than Futures. As in stock trading, you have to take stop losses into account, but in options trading, these losses are already built-in. You have to keep an eye on price movements and time left in expiration. You can take options trading as a business activity instead of gambling. If you are able to pay the proper attention that it needs, you can make a significant profit in options trading. 

     

    Author
    Sky Hoon. Read Full Bio
    Website Owner, Twitter-er
    He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.

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