Stock Options – Overcome the Fear

First, let me tell you what I am not. I am not an expert in stock options. I do not write books, give lectures or host courses teaching stock options. What I am is a part time stock market trader who stumbled upon a way to take some of the risk out of a volatile stock market using stock options. I am a technical stock market trader; I enjoy poring over stock charts trying to squeeze every last bit of information out of the price movement of a stock in order to discover a trend. Over time my trend following “system” worked well enough to provide some nice but moderate profits.
Not too long ago equity markets changed. Negative news both local and global caused wild market price swings. When the overall market swings wildly in either direction it takes 70{afe232c3ea7dcee0a9b500e712c36ed73e0bf8021eb768210a7cfcc3f030476e} of all stocks with it. The result was that many people lost money and the small investor had to sit on the sidelines and wait for the market to stabilize. Financial institutions rule, which adds to the overall instability because institutions trade stocks in large blocks.
My choice: wait for a stable market or try something different… but what? A friend mentioned stock options, but I was always hesitant about options because… well, they seemed so different from simply buying stock. The jargon itself always made me hesitant. But I had to try because the alternative was to sit by and watch. I took the first step: I bought two books explaining in detail how to trade options.
The first thing that I learned was to take each book slowly, one chapter at a time. By that, I mean that I sometimes read a chapter more than once before I absorbed the full meaning. I expected this. For my next step I bought a course using proprietary software to trade options. I soon realized that stocks and options are two sides of the same coin. I prefer to use options as a hedge against risk on stock that I already own, but I there are many other “options”. Remember also that you do not have to own stock to trade options. I sometimes buy and sell options, go long or short and sometimes both at the same time
I found that the important characteristics of stock options are that they work best when the stock and equities markets are volatile. Options increase leverage because they cost only a fraction of the underlying stock price and options can reduce risk when applied as an “insurance policy” against loss.