Good article of persuade not trading option

http://web.wenxuecity.com/BBSView.php?SubID=finance&MsgID=465763

Do not play option, here is why..

文章来源: marketgame 于 2006-06-17 00:11:00




I am in this site for sometime, recently, several "famous" people here mislead people to play option. That is a losing game, please do not lose your hard earned money. I have 8 years experience in stock/option/futures trading and there are lot of lessons to share, one of it is not play options aggressively please.

There are some misconcepts about option. such as limit loss and big return.
actually limit loss = TOTAL LOSS
big return = SUPERLOTTO.
It is like to play lottory, limit loss, and huge huge return, in the end, you will always be loser!

If you really want to play option, instead of long it, write it, no matter it is naked or protected(spread, covered call, etc). Ok, let me say it again. WRITE IT. here is why,

The stock or index price can be one of following possible moves.
1. move up huge
2. move up little
3. bounce up and down(flat)
4. move down little
5. move down a lot
if you short a call, the only possible case you are going to lose is the case 1). the odd is 4 to 1, even dummy knows which way to go, besides, when something moves up huge, most of time it will turn back, so you still have chance to profit. Put is the same. If you want to make more profit, short both put and call.... Ok, to make thing simple, to comparing the insureance bussiness in the real world, how is life insurance company doing, how is car insurance company doing? most of them are profit companies for many many years. Option is a insurance, you should sell insurance instead of buying. Certainly before you are doing SELL OPTION, you need to do following several basic things.

(1) RISK control
(2) Money management

I do not have much time to talk about details, very simple way to say, chose to write index/future options, instead of individual stock. write far away out of many option, instead of at the money or close to at the money option. Read charts to find the resistance and support line and to write option around that areas. write option less than two month, it is better one month, never write option over 2 months. Do some hege about your position when market is really crazy like last two weeks.

I am talking to much, stop here, I really do not want my fellow chinese to lose many in so called high return option bussiness. For most of common people like me, to buy option is very dangerous in long run! Certainly there are few very very samrt guys like Buffet, Livermore and Swarze etc. they are rare animals, very rare animals. So be realistic, right attitude, just think this is like your day to day job, do not expect to be rich huge immediately. I believe that everyone can earn some money here and there in stock market..,