One thing I’ve learned by trading options is it has taught me to be a better decision-maker. I found decisions come easier, faster and with more conviction. Not too many career choices, nor hobbies can improve on decision-making quite like option trading. Even for public safety professionals and doctors, decision-making can be difficult. Time is often on their side and the consequences of each portion of a decision can be analyzed and scrutinized.
The same thing can be true for entering a trade. I would liken the entry of a trade to a decision that a police officer may make, or doctor may make for the care of a person. However, the exit of a trade would be more similar to a life or death decision of a police officer or that of an ER or trauma doctor. In other words, once you’re in the trade the intensity forces you to make decisions on the fly without the knowledge of what the future holds.
You will find that making decisions becomes easier once you’ve been trading options. Smaller decisions like where to go to dinner, can plague many people. I often will ask my wife and daughter what’s for dinner only to wait hours before a decision is made.
On the entry of a trade you find you are more willing to dismiss a bad trade once you’ve been trading for a while. Many newer traders might have visions of grandeur and want to make a trade than on its face is not beneficial or likely probable. That’s not to say that experienced options traders won’t make a bad trade, or have a trade go bad for them. What I’m getting at is that most experienced traders will make their decision on probability of profit and the risk they are taking on that trade. More experienced traders that have learned to hedge their whole portfolio may even make a decision on a trade to hedge the risk on other traits, whether they’re good or bad. Again, this improves this decision-making.
A decision should be no more than a critical analysis of the options presented, then a choice made towards one of those options. Many people can get mired in every little aspect or the results of a bad decision. I often find when I think critically about a trade, then compare that trade to my general trading rules, the decision is very clear to make the trade or not. Similarly, when presented with a problem in our own personal lives, the process should be the same. Look at the options, compare them to our general life rules, or ethos, then act on that decision.
Another skill that is refined by options trading, is one math and probabilities. Learning to do the math in your head and come up with the probabilities of a trade in “general” terms improves how you look at other things in your life. For example, I noticed many people will get a calculator out to figure the tip on a bill at a restaurant. Your brain will come up with ways to simplify this. What I do now, is take the tab, round to the nearest $10 and double just the number in the $10 increment. If your bill was $80, I would take the eight and double it. So, a 20% tip would be $16.
Now, the largest irony is many people would like to learn to trade options or invest. However, they do not want to take the time to challenge themselves and learn something new. For that, they’ve left themselves in a box which they cannot get out. Others learn to trade and don’t want to expand into other investments. Although I agree with you should trade what you know, could there be room for improvement?
I’ve written on how options are safer and can be hedged easily to protect a large portfolio. Also, the cost of entry into an options trade can often be much lower than another trade involving stocks. I will expand on this and other writings.
In the meantime, if you are interested in trading options and need a good brokerage, I would recommend TastyWorks. You can click on the link here and it will help us keep up postings to help you be more profitable.
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