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WARNING: MARGIN DANGERS (Patreon)

Published:
2023-08-18 15:20:33
Imported:
2023-08

Content

Hey Team

this is something I have stressed and will mention it again

Do not trade options unless you are an experienced trader.

  • There is always someone on the other side of the trade, eg me, and they are probably more experienced than you. Options are mostly used by pros!
  • You can lose a lot of money if you make a wrong trade. Your account can be wiped out. 
  • Always make sure you can cover your losses.This means having enough money to buy the underlying asset if the price goes down.
    For example, if you sell 1 put option with a strike price of $350, you need to have at least $35,000 in your account to cover your losses - I always assume the asset could go to ZERO eg MSTR going to ZERO and you sold a put - each contract will cost you $35K. 

THIS IS WHY I have a 20% trading bag and an 80% HODL bag w Equity like GOOG and TSLA - this is my cushion.

Here are some additional tips for safe options trading:

  • Start with paper trading
  • Start with covered calls
  • Start with small trades and gradually increase your risk as you gain experience.
  • Only trade options on assets that you are familiar with.
  • Use stop-losses to limit your losses. If a trade goes against you and your margin is in danger GET OUT! 
  • Do your research and learn about the different options strategies.


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Comments

Anonymous

I am just starting to dabble and have only put 17 bucks at risk so far.

Anonymous

Risk/reward and all that but chances are if you have to ask someone else if it's the right thing to do - you shouldn't be doing it!

Anonymous

Why I not tried to do Options. Maybe one day post medical life in retirement for the challenge but not now. Just keep simple buy and hold. Trying some Pair Trades of BTC/Sol and soon will try MSTR/GBTC!

Anonymous

Ran out of margin for my SL at 250 yesterday. Liquidated position at a small loss. Hated that but feels good to be out of short puts in this market. Bot a little more TSLA straight up. Market sux

Anonymous

I am up against the Master. I can't see myself trading options. I am to much of a rookie.

Anonymous

On most trading instruments like stocks, crypto, Forex you can make/lose $ when the price moves for or against you. In futures if you are trading different expirations at the same time they can diverge and create huge levered losses. Options are unique because changes in the underlying assets price, change in volatility, and time decay all affect your position profit/loss. I've noticed several YouTube options traders have switched to futures. One complained that Theta (time decay) made it hard to be profitable. If you tread the options path, you will spend a lot of effort to get sustainably profitable.

Anonymous

Well that's enough to scare a newby out of options trading, seeing James on the other side of the trade 🤣 Perfect way of showing the risk involved!

Anonymous
>>115562356

I would agree if you are buying options or selling naked and almost impossible doing short defined risk trades such as Iron Condors. But if you are selling CCs, it’s a great way to smooth your portfolio volatility and decrease your cost basis.

Anonymous
>>115562356

Hmmm, the greeks are built into every option position. Some positions can minimize some of the greeks by design. On long term underlying holds, I prefer to sell vertical call spreads, I make a little less but don't cap my upside. I'll also sell put vertical spreads to net a little extra without unlimited downside. If it doesn't pay dividends, I prefer to hold longer term options because I feel it is more capital efficient. I'm just getting started with diagonal spreads so may change my methods.

Hightauer

Rather than telling everyone not to get into Options, which are WAY safer IMO than bucking up for equities for long-term holding, why not offer your opinion from when you were a beginner? Most people start by 'Buy to Open' with the intent to exercise the Option contract's strike price by that expiration date. Granted, the Option contract would probably require ~$3000-4000.00 to buy, but less expensive than buying outright. For example, there are funds like ARKK, also miners like CleanSpark that offer Call options for those who PLAN to exercise the contract and BUY the 100 shares at, say, $85 strike price. I.E. post-Bitcoing halving (say April 2024), Coinbase (COIN) stock goes up alongside BTC in June 2024 through Dec 2024...all the way to $300/share. This is very feasible KNOWING that there WILL be a halving. No opportunities ever come around like this where everyone knows SOMETHING will happen. You can exercise the contract and buy 100 shares at $85 for $8500.00, then sell at $300 for $30,000.00. Or, sell the contract and hope the loss isn't too bad, if teh BTC halving has no effect on Coinbase. Which is a major impossibility IMO. For the risk, the reward is SO much greater with Options. IF people understand what their GOALS are. James, it sounds like you are more into trading options contracts. Buying Call Options to Open, to hold, may be a great 'option' for people here who need to minimize their risk. Please LMK if I'm wrong? Thanks!