nobody will buy options if there were no leverage and only premium....who would need it then?
these were cleverly created to make profit form those who were otherwise not getting trapped and were otherwise difficult to beat. this way, through options they would potentially stand to lose via premium erosion even if they were not in the wrong trade direction.
and guess who gets naturally lured into buying options? those who have less money and/or want to get "rich" fast. options trading is a legal drug.
....small traders...millions of them...in herds....pan continents
the operators tried giving tickets of futures also, at small margins as an alternative to options (in fact, if i am not wrong, futures came earlier than options), but they have now started folding up the scale of the spread of the futures products as it lured lesser people than the genius options, scared more besides being constantly under the government and watchdog eyes for being politically and economically too risky for the returns
the game is overwhelmingly tilted towards option writers. and, mind you, not everyone can or should write options. just because you have the money to sell one or more option lots doesn't mean it is for you. if it is not for you, going the writing way is like being 100 times bigger fool and prey than an option buyer.
only "they" can and should write....
when f&o were not there, only way to beat the masses (though the numbers of traders then were far lower than those today) was in pure price volatility, on real and imaginary pretexts. as economic prosperity became more and more luring and desirable but less achievable, masses got started getting attracted towards stock markets. the invention of f&o made this possible. infact, these were created in first place to tap that potential casino market.
the best way to avoid this fatal slow poison trap is not only not to write options but also not to buy these. even if you are right in getting the direction right, you will eventually lose. i bet and i can prove it. because premium erosion is not the only trap. there are more traps lined behind it. including illogical surprise moves or lack of any.
not just f&o, every kind of leverage is poison including intraday margin. all are traps masked with mouthwatering "opportunity" promise to make a fortune with so less...
if you still want to do options you stand no chance if you don't have a very solid trading system which can fairly accurately predict portion or pattern of price movement with amazing dependable repeatability. many may think that they have got such a system but more often they are tragically betrayed by it.
besides such a "really loyal" system, you need immense patience to accept the unending delay in your becoming a millionaire (or billionaire) from the debt ridden tie-wearing failed masked mortal with injured ego you are (oops...sorry)
not that people are not getting their market calls right. in fact, many are....more and more traders in the world are beginning to crack a part of the puzzle (though the overall %age is till miniscule). but despite getting it right they book profit too soon for fear of losing because of guaranteed unexpected surprise moves, or booking loss too late. this may sound like a cliche' but this is true with everyone. it is bot stupid and therein lies the tragedy of success of this trap.
this is the single biggest factor of masses being on continuous losing side despite their knowledge and skill.
so what's the message here?
1. i am not asking you to stop trading. half of the world is into trading...incl. potatoes, mobiles, souls, bodies and what not. trading is essential and good. but stop trading leverage. trade with what you have. earn, beg, borrow, steal the principal from somewhere (pardon the slang) but don't trade leverage. atleast, for heaven's sake, reduce it.
2. avoid the cake laced with the cream or honey poison of "premium". premium is the sign to look for. minor premium is ok. but anything more than a "small" premium is shady.
3. trade only clear cut opportunities. otherwise stay out, till you identify one. spend a lots of time in the jungle to identify the real non-fake opportunities. real opportunities don't look like one, except to a very trained seasoned eye. go the long route.
(decide what is "small" for you)
4. once you know that you have taken the right trade, hold onto the trade and don't get bluffed or ejected even if you were to lose big. that's why i say everything depends on the accuracy of your trading method and that's why i say trade only that big which is perfectly ok for you to lose all.
5. ignore the short term volatility, try to figure out (though system) what they are trying to achieve in the medium to long term. where are they taking the market. i know 99% still won't get it. if 99% get it, the operators will change the game to make sure only 1% get the ne version. but atleast, here's your and our chance to try to be in that 1%.
in the end i would say two lines....trade like you were a potato trader....play the trading game, don't trade the trade.
