OPTIONS TRADING – A closer look

options trading 470 x 276Something happened recently that made me realise that even the most sensible of people can be beguiled by the promise of big returns.

A smart businessman, recently retired, told me excitedly that he was about to embark on an options trading strategy. Now while I am in awe of this person’s business acumen and with no disrespect intended, I’m not sure that the terminology “experienced investor” would apply.

Immediately my mind went to many instances where I’ve reviewed the investment returns of amateur options traders and thought of the approximate $50,000.00 that was about to be thrown to the wind.

I’m not saying that options won’t work and, by the way, this is not investment advice! I’m just saying that, in my experience, it seems to me that the real winners are the promoters of the trading software and training.

Let’s “Do the Math’s”.  Bank interest is around 3.6%. Options trade spruikers will sell you the software and training for around $4,000 maybe more. That would mean that beating the banks requires a return of more than 11.6% (other investment types much more than this) and that is before adding trade fees.

Doing the Math’s might also include, am I at a time in life when it will be easy enough to recover the capital? How do I handle stressful situations such as stock prices doing exactly the opposite of what is planned? Do I want to spend hours of time anxiously watching the market? Spending the $54,000 odd on a cruise might offer better returns!

This blog goes nowhere near covering all the aspects of how sophisticated options trading is and how much intestinal fortitude one must have to play the game.  But hey I am an accountant so by nature prefer lower risk investments with reasonable returns.

 

Liz Gibbs

OPTIONS TRADING – A closer look
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