Trading In Options Is Easier Than You Think

Tony Saff

You can beat the market if you control the rules!

Yes making money trading can be incredibly difficult, investing geniuses keep telling us that we have to be invested in the stock markets to really make the big time rich list. But what if the markets go down like they have recently? Unless you get out early then you have no protection at all. Going to a bank for a safe protection is great if you want your investment for your future children…when they grow up.

The only true way to make a descent return on your money and really be protected when the markets go south is to trade. But in todays uncertainty that’s also very difficult. Trading in the futures and Options is very profitable for the short term, both have some risks, but both rely on selling low and buying high. Which means that to truly make a huge profit a trader needs to know (or guess) whether the price of that commodity in the future will go up or down.

The statistics are clear on that. 70% to 80% of money managers will NOT beat the market, in other words most investors in the stock markets will not make money. That then leaves 20% or 30% , are they the ones getting rich? Actually that is incorrect, these ones will also under perform, the facts are that less than 5% actually make money on a regular basis. And the fundamental reason why the number is so low is that every one is trying to beat the market.

You see the principle of buying low and selling high is simple, implementing it is the difficult part since this relies on predicting the future price. BUT what if we changed the rules? what if we were not to rely on the direction of the price but rather the size of price movement? Now we are getting close to that 5% of traders who make lots of money trading options, yes those traders who do this for a living and live in those huge mansions. the professionals.

How do they do it?, the Key is Volatility and Probability.

“Hang on”, I can hear you say, “this sounds too complicated”, don’t worry, there is no need to go for the abacus or call your uncle who is an expert in trigonometry.

This is easier done than you care to think, you see by recording the price history of an options stock for one month we can get its volatility, and with that, we can (using Excel or similar) we will derive the probability of where the price of that stock will be in a given future time. No, not which direction the price will go, thats what the 70% or 80% and the rest are trying to figure out, and why they are failing, but what we want is the range that the stocks price will be trading in a given future time. Once we have this we are already 120% in front of every other investor out there.

We can do with with any option we want to trade in, now how do we go about getting Volatility and Probability?

There are a number of very expensive services and software, you can actually do this in Excel Spreadsheet it has all the formulas.

Related posts:

1. options stock
2. Stock Online Trading
3. International Stock Trading
4. Stock Historical:P/E Ratio-How Valuable Is It?
5. Buying Share Stock
6. Trading stock market: Brokerages Secret
7. Trading Stocks

Tags: options stock

This entry was posted on Saturday, February 21st, 2009 at 3:49 am and is filed under Stock Online Trading, options stock. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.