taken place in stock investing and ownership over the past 10 years.
Whether through their retirement plans at work or in their personal investment
accounts at home, a rapidly growing number ofAmerican households
now own stock in publicly traded companies. Also well documented is the
fact that an increasing number ofindividual investors are actively involved
in making their own investment decisions, specifically in the area ofbuying
and selling stock. Less widely known, however, is that alongside this escalating
interest in personal investing and portfolio management is a growing
curiosity about the potential benefits of stock-option trading.
In fact, evidence shows that the excitement ofthis new opportunity has
led many new online traders to rush into trading with a get-rich-quick mentalit~
The attitude is ''buy low, sell high." New traders are so eager to make
money in the marketplace that they commit a majority of their capital to a
position without taking the time to analyze the risk/reward profile. At this
writing, all evidence indicates that the majority ofall day traders are losing
mone~ There are several reasons. First, most day traders do not fully understand
risk management. Rather, their primary strategy is essentially based
on hope. Second, they are committing too much capital to a position, and
they are not treating trading as a business. Instead, they treat it as a lotto
game. The California Lotto slogan rings so true with the day-trading herd:
''You can't win ifyou don't play!" How many lotto winners do you know?
On the other hand, those who have been less quick to act (the cautious
investors among us) have remained on the sidelines, reflecting on what
they have heard concerning the inherent risks of option trading. Having
read that options are primarily used for speculation and that most will
expire as worthless, these investors turn their backs on options and on the
potential that they have for enhancing their investment or trading performance.
What we can see, then, is that although stock-option trading is
steadily gaining legitimacy, many oftoday's newcomers-the enthusiastic
and cautious alike-do not sufficiently understand stock options in order
to use them effectively as components of an overall investment strategy:
As professional options traders, we have been buying and selling
options for a living for many years. We understand the risks and rewards
of options in a way that the individual investor might not, and from that
standpoint, we believe that for both the enthusiastic and cautious
investor, a sound education in stock-options trading is a necessary investment.
From our vantage point, we get to see how investors are using (and,
in some cases, abusing) stock options. In addition, options trading can be
risky-especially for those who want to use options speculatively in order
to create quick wealth. Yet, at the same time, we are more than familiar
with the ways in which options can be used to preserve existing wealth
and create predictable sources of income. How you use options is what
matters. We would like to encourage the enthusiastic and hesitant
investor alike to use this book in order to obtain the real facts about stock
options. Our strong belief is that individual investors can and should
learn how to use stock options intelligently and prudently-and in so
doing, they will make themselves available to new horizons in trading
and investing. Consider, after all, that although the consequences of an
accident or equipment failure can be devastating, most of us drive cars
anyway. We have decided that the benefits derived from driving are worth
the risk. In both cases, we are all the more likely to benefit ifwe learn how
to be good drivers and when to follow code. Options trading/investing is
much the same.
Read More: Why Stock Options?
