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My views about option trading
04 Oct 2021 (608 views)  

Dear Mr. Tan
Option Trading, can you share your view?
I heard that one does not need as much capital as trading in stocks.
One can treat option trading as a secondary income.

Reply
When you buy an option, you will make a gain if the price of the option goes up (in line with the stock price). 

However, if it does hit the strike price before the expiry date, you will lose the option money. 

It is difficult for a speculator to know about the chance of making a gain or a loss. 

It is likely that the speculator will make a loss, as the options are offered by the option issuer. They have mathematical models that help them to determine the "correct price" and they add a margin for their profits. 

It is foolish to believe that option trading can give a secondary income. This claim is usually made by marketing people that want to sell their training course on option trading. 

While some option trades may yield a profit, other trades will result in a loss. Over a period of time, the losses are likely to be higher than the profit. Rather than provide a secondary income, the option trading is likely to lead to a loss of your capital.

Tan Kin Lian
 


My views about option trading
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Dear Mr. Tan
Option Trading, can you share your view?
I heard that one does not need as much capital as trading in stocks.
One can treat option trading as a secondary income.

Reply
When you buy an option, you will make a gain if the price of the option goes up (in line with the stock price). 

However, if it does hit the strike price before the expiry date, you will lose the option money. 

It is difficult for a speculator to know about the chance of making a gain or a loss. 

It is likely that the speculator will make a loss, as the options are offered by the option issuer. They have mathematical models that help them to determine the "correct price" and they add a margin for their profits. 

It is foolish to believe that option trading can give a secondary income. This claim is usually made by marketing people that want to sell their training course on option trading. 

While some option trades may yield a profit, other trades will result in a loss. Over a period of time, the losses are likely to be higher than the profit. Rather than provide a secondary income, the option trading is likely to lead to a loss of your capital.

Tan Kin Lian