Can you lose more than you invest in options? We live in a society that wants results yesterday, and it seems impulsivity is increasing more and more all around us. People have been attracted to day trading because they have seen that there is money to be made in this field. They, however, always wonder about the loss and question if you can lose more than you invest in options. Everything in life involves risk, and scared money won’t make you money. You can keep that $100 in the bank with your 1% interest rate or invest it and get a faster and greater return.
So clearly options involve risk, but a life without risks isn’t a life, it’s just existing. Many options investors fear losing money but the reality is if you use options strategies; you will reduce your risk. Having a plan can make it or break it for beginner investors. If you don’t use a strategy along with identifying your risk tolerance and practice; you will not consistently make a profit. You need to analyze the past performance of the market for stock prices, volume, and zones. You need to practice executing trades with paper trading before you venture off and start investing your own money.
What are Options?
A call option gives you the right, not the obligation; to buy a stock and a put option gives you the right to sell the stock. If you believe the market is trending upwards you would purchase a call option. If you felt the market was trending downwards you would purchase, and put contracts. You would then sell your contracts to either follow your strategy or to minimize a loss. Trading options are best to think of it as the probabilities of future price movement. Day traders buy and sell shares of stocks within the same day.
Day trading is the activity of buying and selling stocks, bonds, options, futures, or commodities with the intent of profiting from price movements in the underlying security within a single trading day. Day traders rely on analyzing the movement of stocks on a chart rather than factors like products, industry, and management. The knowledge aids in knowing when to enter or exit the stock market. It also shows trends which is helpful because previous days’ trends tend to repeat themselves. The main objective of a day trader is to take advantage of small price movements in highly liquid stocks. The more market volatility, the more favorable the conditions for a day trader.
If you are the writer (seller) you have a different risk than if you are the holder (buyer). If you are a call holder and buy a call option, the upside potential is unlimited and the downside potential is the premium that you spent. You want the price to go up a lot so that you can buy it at a lower price. If you are a put holder and buy a put, the upside potential is the difference between the share prices. You want the price to go down a lot so you can sell it at a higher price.
If you are a call writer and sell a call, the upside potential is the premium for the option; the downside potential is unlimited. You want the price to stay about the same or even drop a little. So that whoever buys your call doesn’t force you to sell. If you are a put writer and you sell a put, the upside potential is the premium for the option, The downside potential is the amount the stock is worth. You want the price to stay above the strike price so the buyer doesn’t force you to sell at a higher price than the stock is worth.
Can You Lose More Than You Invest in Options: What Can I Lose?
You can lose more than you invested in a short period when trading options. As the holder of an option, you risk the entire amount of the premium you paid. But as an options writer, you take on a much higher level of risk. For example, if you write an uncovered call, you face unlimited potential loss. This is because there is no cap on how high a stock price can rise.
The reason for this is that sometimes traders instead of the following strategy they latch onto emotion. Meaning once they are actively in a trade, they start to notice things like a zone area gets retested but they stay in the trade. They see the market is heading in the other direction yet they are determined to ride it out. Hopeful that the trade will change direction or in their favor. The way to avoid this from happening to you is simply by sticking to your strategy.
Once traders start to stray away from the tested strategy is when they start to notice losses. Or even worse they start letting emotions take over and enter trades out of anger in an attempt to get their money back. Nothing good will come if you let your emotions take the wheel; you need to remain cool and in control. The only person you are hurting is yourself and your capital. Also, if you have an account under 25k you are limited to only three trades in a five-day business period. Why waste a trade on anger when you could have saved it for a strategic entry instead?
Day trading is not gambling so don’t treat it as it is. Day trading involves a careful analysis of the fundamental circumstances and forecasting of future movement. However, making trades without a solid investment understanding and strategy is gambling. There are many variables in the stock market; like fabrication among traders that creates a gambling setup. Applying a strategy allows a trader to overcome the probability of losing money. When you involve yourself in financial markets there is a learning curve in which you will lose money.
Summary: Can You Lose More Than You Invest in Options?
As human beings, we take risks to achieve a goal and it truly does require courage to face the fear of uncertainty. No matter the outcome, either way, we grow through the process and become more resilient and confident. Building your skills as day traders helps you take future trades and gets you close to your goals. You have learned what options trading is, what you can lose and that it involves risk. I can teach you how to day trade like the top 10% without a complicated strategy or any technical indicators, even if you are a beginner.
My goal has always been to teach as many day traders to achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. I teach the working class how to earn $10,000 a month through day trading. I help my students avoid the challenges I faced when I first became a day trader. As of now, MK Financial LLC is already the #1-day trading coaching business in the US in just one year. You are just a click away from learning what you need to do to take that leap of faith with options trading and take your life and salary to the next level.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
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