Here’s some advice for new option traders:

1. Do not get emotionally attached to the underlying stock. Success in options is mostly dependent on picking stocks that Wall street traders are buying, or selling (if you are shorting) at the right time. 

You may think, for example that zoom is the best company ever and believe all the analysts who are paid to be right, but who are usually way behind after a stock reverses direction. What goes up fast, often comes down fast. 
Example 2: You may be convinced Inovio will become the winner because they have the “best” vaccine. In the meantime Wall Street might be piling into Moderna, mostly because they probably know something you dont. I always assume Wall Street knows something I dont. I only care if my underlying stock is moving in the right direction at the right time.

2. Dont make decisions solely based on fundamental analysis of a company’s net worth. Many stocks are undervalued, but are ignored for long periods of time.

3. To be as smart as a Wall Street Trader (although they often just follow each other) you have to know how to read charts and be able to see on that chart when a stock is starting to move in the direction you want it to go. Timing has to be part of a winning strategy.

4. Learn how a stock is connected to a sector, which is connected to an index, which is connected to the economy and World events. You may decide, for example that the virus is having no impact on the stock market, until you realize that about 30 (covid19) stocks have been pushing the indices higher while half the remaining stocks are groveling along the bottom. And those 30 amazing stocks may be connected to the 30 richest people in the World, who own 47% of the World’s wealth. We, as option traders are only competing with other traders to take some of that wealth for our own financial well-being.

5. Always build cash and keep some diversity in your portfolio. Have an exit strategy when you are wrong. Any profit is better than a loss. Great traders have all had huge losses, and they never stop learning and refining their strategies.

6. Finally, be aware of the addictive component that will drive you into financial despair. Making fast money is like a drug that makes you instantly happy. But the opposite part is despair and depression during the times you are wrong (often not by your own fault, but by multiple factors you may not have seen in your analysis). The solution to this despair is to always build cash and to be able to see the fruits of your labor. It is always tempting to put all your chips in. Dont do it. The vast majority of all traders quit within 3 years, half of those within the first month. You alone are responsible for your successes and losses. Learn how to be successful first with smaller amounts of money, spread out over several different stocks. Learn how to minimize loss.

by Baker Symes