I have been trading options just about every day the market is open for about 40 years, including some time on the floor of the CBOE. I have made large sums of money at times, and (sadly) have also lost money along the way. But the amazing thing about my experience is that I continue to learn things even after all these years.
Today I would like to talk about trading options with an analogy.
Trading Options Can be a Lifetime Learning Experience
If the truth be known, investing in stocks is pretty much like playing checkers. Any 12-year-old can do it. You really don’t need much experience or understanding. If you can read, you can buy stock (and probably do just about as well as anyone else because it’s basically a roulette wheel choice). Most people reject that idea, of course. Like the residents of Lake Wobegone, stock buyers believe that they are all above average – they can reliably pick the right ones just about every time.
Trading options is harder, and many people recognize that they probably aren’t above average in that arena. Buying and selling options is more like playing chess. It can be (and is, for anyone who is serious about it) a life-time learning experience.
You don’t see columns in the newspaper about interesting checker strategies, but you see a ton of pundits telling you why you should buy particular stocks. People with little understanding or experience buy stocks every day, and most of their transactions involve buying from professionals with far more resources and brains. Most stock buyers never figure out that when they make their purchase, about 90% of the time, they are buying from professionals who are selling the stock to them rather than buying it at that price.
Option investing takes study and understanding and discipline that the purchase of stock does not require. Every investor must decide for himself or herself if they are willing to make the time and study commitment necessary to be successful in option trading. Most people are too lazy.
It is a whole lot easier to play a decent game of checkers than it is to play a decent game of chess. But for some of us, options investing is a whole lot more challenging, and ultimately more rewarding. For example, Facebook (FB) has had a great start for 2017. It has gained 20.5% in the first ten weeks. The Terry’s Tips option portfolio that trades FB options (calendar and diagonal spreads) has gained 105.7% over this same period, over 5 times as much. With actual results like this, why wouldn’t any reasonable adult with enough cash to buy stock want to learn how to multiply his or her earnings by learning a little about the wonderful world of options?
Playing checkers (and buying stock) is boring. Playing chess (and trading options) is far more challenging. And rewarding, if you do it right.