How many times have you heard the phrase, “You have to spend money to make money?”
When it comes to the stock market, it sometimes feels like you need to lose money with the hope of making money in the future.
For those who are wary of trading options, it is important to understand the difference between options trading and buying and selling stocks.
While playing the stock market can certainly seem like gambling, the right options trading strategy can help manage risk.
David Jaffee of BestStockStrategy.com has found that by selling option premium, you can win up to 98% of your trades.
Keep reading to learn how trading options is much different than gambling.
Is options trading legal?
Those who are new to options trading have many questions, and for good reason.
A lot of sketchy things seem to go on when the stock market is involved, and it can often seem unsafe or even illegal.
However, properly trading options is completely legal.
You can set up an account with a reputable broker and add funds to start trading options.
David Jaffee prefers to use E*Trade and Tastyworks, but any legitimate broker will do.
While you can make a profit trading options, you will not get rich overnight.
Becoming a profitable options trader takes time, patience, dedication and proper risk mitigation strategies.
Is options trading safe?
Options trading can be one of the safest ways to make money in the stock market if you use the right strategy.
Unlike buying and selling stocks, option trading enables you to significantly reduce your risk when trading (when done correctly).
If you learn the best options trading strategy or follow a successful options trader, you can minimize risk while maximizing your potential profit.
While nothing is 100% guaranteed, options trading can be much safer than gambling.
David Jaffee has taught more than 1,500 students how to trade options through his online options trading course at BestStockStrategy.com.
You can learn how to win up to 98% of your trades and manage losses to remain profitable.
How to Reduce Your Risk When Trading Options
Selling options is not gambling because, when done correctly, every trade has a positive expected value.
When selling options, it's important to trade options on large, highly liquid stocks. Additionally, it's important to sell options that are far OTM so that the position doesn't get challenged.
Perhaps most importantly, it's vital to watch your size when trading so that you don't get placed into a margin call.
You can reduce your risk when trading options by selling option premium and acting like an insurance company.
There is asymmetric risk when selling options. You have a high win rate, but when you lose then you can lose substantial amounts of money. As a result, it's important to buy options as well to protect yourself from market crashes.
David Jaffee teaches traders how to collect option premium to earn a profit, while also minimizing portfolio volatility.
Instead of gambling and leaving your wealth to luck, you can act like the casino and collect premium by selling options (while also minimizing drawdowns).
You shouldn't expect to gain massive profits with this strategy, but you can target a return of about 3% a month when selling option premium.
Remember that the higher returns you seek, the more risk you're going to assume. Unfortunately, most people treat the stock market like a casino and end up losing money.
This options trading strategy requires discipline to mitigate risk and manage potential losing trades.
Is options trading profitable?
If you use the right strategy, options trading can be profitable.
It is best to avoid promises of overnight success or instant millions, but you can make money trading options.
Profitable options trading involves making smart trades based on your watch list of stocks or indices.
By focusing on a handful of stocks (or indices), you can better learn their trading range to make wise trading decisions.
Consistent profits add up over time, helping to grow even small accounts into impressive numbers.
Is trading options worth it?
There are many people who can benefit from trading options.
If you are looking to supplement your existing income, earn a flexible income, or learn a valuable skill that you can use for years to come, options trading (and selling options) may be your answer.
Investing your money can seem scary, but the right options trading strategy can help provide returns on your investment.
Instead of gambling your money away, it may be best to sell option premium and collect premiums like an insurance company.
There will always be some level of risk with every investment, but trading options is worth your time, effort, and investment.
Learn the Best Options Trading Strategy
Trading options is not gambling if you know how to manage your risk.
David Jaffee offers an online options trading course, which provides everything you need to start selling option premium and earning a profit.
Visit BestStockStrategy.com to learn more about options trading from the #1 options trading coach.
Frequently Asked Questions (FAQs)
Is trading options gambling?
No, it's not, when done correctly. However, there definitely are scenarios where traders treat options trading as gambling and engage in low probability trades that have a low chance of being successful.
Can you get rich from options trading?
It's very difficult to get rich from trading options. Yes, it's true that some people get lucky and turn a small amount of money into a large amount, but those people usually end up losing everything.
In reality, trading options safely contains a lot of nuance and discipline.
It's definitely possible to make significant amounts of money by trading, but traders will need to follow Warren Buffett's number one rule: Don't lose money.
They can achieve this by focusing on reducing their portfolio volatility.
Are binary options gambling?
Yes, binary options is similar to gambling.
Binary options and options trading (selling or buying calls and puts) is much different.
Binary options is not a good usage of your money.