Why Is Options Trading So Much Harder To Learn Than Stock Trading?
Isn't Buying and Selling Options Just Like Stocks?
A lot of beginners to options trading do not understand the depth and complexity of options trading. They think it is just something like stocks where you just buy low and then sell high for profit and leverage.For most beginners to options trading, they think that options trading is simply, if you expect a stock to go upwards, instead of buying the stock, just buy the option and then sell when price is higher for leverage.Therefore, most beginners think options trading is something you simply have to give a 2 hours seminar on or simply just a simple explanation of how to buy and sell will do. However, that simplistic thinking terminates the moment people open up a trading account and look at what options are for the very first time. From that very first look, that simplistic thinking shatters and they realised that there are a lot moreto options than meets the eye, that they simply don't know what they don't know.
One Stock But Hundreds of Options!
The very moment a beginner takes the first look into a trading account expecting to buy an option for a stock that is expected to rally, immediately they are hit by the complexity of that simplistic idea; Instead ofseeing just one option to buy for the stock, they are immediately presented with upwards of a hundred different options! And instead of seeing just one kind of option, there are two and comes also with its own hundredsof options. Now suddenly they realised, they didn't know what kind of option to buy or sell and they didn't know which option amongst the hundreds of that kind to choose from nor the difference. Simply the fact that forevery single stock, you have a choice of hundreds of options contracts immediately makes options trading nothing which you can simply learn by knowing simply how to buy and sell. Understanding what the two kinds of optionsare and what they do and the difference and reasons for the hundreds of options under each kind is weeks of study in itself. In fact, even though most people commonly know options simply as a way of profiting with leverage,every single one of these hundreds of options contracts offers a different level of leverage! Simply understanding how the leverage of every single option work and the conditions for profiting is tough enough and after someone think they know what to do and know which option to buy and know how much the stock must move in order to make a profit, they receive the next shock of their lives...
Options Prices Don't Work on Simple Logic!
That the way the price of the options they bought behaves is nothing they expected! It is either they start to see a profit out of the blue even though the stock has not moved past the pre-calculated breakeven point orthe stock is doing nothing but their options are actually losing money or that the stock is actually moving in the predicted direction and they are STILL losing money! When the beginner options trader get to this stage,they begin to realise that the way the price of options contracts behave is far far more than meets the eye and the education into the price mechanism and behavior of options begins and that can be anything from days to monthsor even years of learning! But even after going through and overcoming so many knowledge barriers that beginners to options trading did not even know exist in the first place, profiting from options still remain farmore difficult than profiting from stocks simply because...
Options EXPIRE, Stocks Don't!
Options EXPIRE but not stocks! Yes, when you make a mistake in trading stocks, you simply have to resign yourself to your "luck" and then just hold the stock forever until one day it comes back up. However, that luxury is notsomething you will have in options trading. Unlike stocks, options EXPIRE. Meaning, they cease to exist after some time when their expiration day arrives! As such, when you make a mistake, you are going to lose money,there is simply no luxury of just holding on and waiting forever. As such, you are going to have to be far more accurate with options than stocks or you are going to have to learn far more advanced options strategies in orderto increase your chances of winning.
Why Options Trading Is So Much Harder To Learn Than Stocks - Conclusion
As you can see above, this is why learning how to trade options requires a complete and systematic training and education program. It is simply nothing you can figure out on your own like trading stocks. Options is a trulycomplex financial instrument and it can give you MANY nasty surprises that you never know can happen (Like all of a suddenly getting hit with a huge short stock position into your account that you never had before!). It is so complex that the things that can happen when you buy or sell options is completely outside of anything you can imagine as someone who has no education in options trading. This is why I mentioned in my article onHow Long Does It Take To Master Options Trading that it can take a lifetime to learn options. Are you ready to put in that much work to learn about options in order to benefit from it? Or are you expecting options tradingto be something you can pick up in a single weekend?
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