I'm a newbie and want to purchase stock options. Please advise...?

Question

I am new to investing and I recently received something in the mail about buying stock options. The mailing sounded very convincing that if I were to invest in stock options the risk would be limited to my investment. I really could use some guidance in this area. I am thinking about starting off small; say around $250-$500 to begin. All responses are appreciated. Thanks

Answer 1

DereKiwi gave you some excellent advice: before you do anything like this, educate yourself so that you can make an educated decision.

VT gave you some incorrect information: it is not true that 80% of all purchased stock option contracts expire worthless.

If you do not educate youself first, you will have almost no chance of making a profit if you do many trades.

You can start your education for free at

http://www.888options.com/

Once you have gone through the material there, you should still probably read one or two good books on options. I like

Options as a Strategic Investment by Lawrence McMillan and

Option Volatility & Pricing by Sheldon Natenberg

but you should choose something with which you are comfortable.

While you are learning, you should try to save up some more money. Lawrence McMillan, on his website,

http://www.optionstrategist.com/

has indicated you need more than $20,000 to start trading options if you are going to be successful.

Answer 2

Firstly, understand that stock options are not investing. Investing is long-term holdings for average gain over time.

Stock options can be good if the underlying stocks do well. But that is not guaranteed in any circumstances. And of course the mail out will sounds convincing - they are selling a product.

Never forget that every stock broker, and every investment manager, and everyone else in the industry are SELLING a product. They make money whether it is successful or not. Your financial wellbeing is not their concern.

So before you do anything like this, educate yourself so that you can make an educated decision.

Answer 3

Fact: 80% of all purchased stock option contracts expire worthless. Stay away: you're being lured in by your own hopes, dreams and greed. The standard strategy is to buy and later sell at double the price you paid. That's an even money payoff for 4 -1 odds. Nope.

Now you know why the market makers are so happy to sell options contracts.

Answer 4

There are actually people who have made money buying options. I do not know any, but that is the rumor. I have bought options on several occassions. One actually made me money. One out of about 3 to 5. I lost count. Options are for die in the wool speculators. Sort of like playing the slot machines. I do occassionally buy put options and hope that they expire worthless. They are my insurance against a falling stock market. I do dearly love to sell covered calls. Never lost money on one yet. Sort of like raking in the cash.

Answer 5

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Answer 6

I see that you are about to do something that you will regret for a very long time here. Asking for FREE, Off-the-street advise is a highway to disaster and is something every beginner MUST avoid! If success in the stock market is as easy as posting a question like this here, why are so many people still poor??

There are quite a number of things you need to learn before you can even start thinking of the stock markets ...

1. You need to understand how the stock market works and what it is exactly about.

2. You need to know what are the different styles of trading in stocks and shares.

3. You need to read about why so many people lose their shirts in the stock markets so that you can avoid their mistakes and also decide if this is a risk you want to take.

For all these issues and more, you can read about them from some of the articles that I wrote at http://www.mastersoequity.com/articles.htm

After you are adequately armed with the basic concepts and ideas, you need to know how to find profitable stocks to trade or invest in. You can do that the easy way by subscribing to stock pick services (example http://www.stockpickmaster.com ) or you can learn to use charting tools and softwares to find stocks with parameters that you can pre-define. (example http://worden.mastersoequity.com/ )

Remember, the slogan "Just Do It", Just won't do for the stock markets. If profiting in the stock markets is as simple as buying a single stock , then why are so many people still poor?

After you have all the above mentioned knowledge, you need to ask the following golden questions before you can decide whether a stock is worth buying or not :

1. Why are you of the opinion that this stock will rise?

2. Is your opinion valid in the first place?

3. When are you expecting it to rise? Can you hold on for that period of time or longer?

4. What is your expected entry price? After what price would your expected profit margin be too thin to enter upon?

5. Where is your expected stop loss point? What is your stop loss point based on? Where will you tell yourself that it is time to take a loss and get out?

6. Where is your expected profit taking point? What is your profit taking point based on?

7. Does the way you are buying the stock allow you to hold on until your expected profit taking point?

8. How much of your money should you dedicate to this one trade?

9. What is the level of primary, secondary and idiosyncratic risk you are undertaking when deciding how much of your fund to use?

10. What is your cashflow need? Does your cashflow needs allow you to hold the full lifetime of the stock?

After you are able to answer all these questions confidently, THEN you are ready to... PAPER TRADE your stock strategy. Yes, even at this point, you are NOT READY to trade for real. You should trade on PAPER for at least 6 months and become consistently successful BEFORE you take your stock strategy into real life.

Then.. you are ready to start... but there is still no guarantee of success as paper trading is very different from real trading. You will need another maybe 1 year or 2 trading very little money and be consistently successful BEFORE you are ready to increase your stakes.


So, as you can see, success in the stock markets is not easy at all the the less knowledge you have, the more risk you undertake. I lost hundreds of thousands in the stock markets before I become successful.

Take heed and good luck.


All in all, investment and trading is a lifelong education and non stop learning. No one is ever done learning and catching up with changes in the markets.

If you care to read about how I went from completely broke to retired millionaire trading stocks and options by 28 years old, you can go to http://www.mastersoequity.com/

Hope these information helps.


http://www.optiontradingpedia.com/

http://www.mastersoequity.com/

.

Answer 7

Simple advise: Avoid any unsolicited advertisements through the US Mail or email. This is a scam. They get your commisions & you lose. Gold, commodities, Forex, Futurers are also profit makers for experianced traders... Not "newbie's...................................

That's not saying you can't make money in options. I sugest you try it after 5 -10 years of heavy trading. Same advise goes for Penny Stocks.

If it seems to easy to be true.............................................

Answer 8

You better stick to the bull market for a couple years at least don't take risks like that you could end up losing it all and oweing money to your broker money.

Answer 9

Options are no place for newbies.

Put your money in a good mutual fund to start with.

Answer 10

stock options are for EXPIERENCED investors with lots of cash in reserve. Don't try it newbie