Are you looking to start trading options but are a little bit nervous because of their reputation for causing financial destruction? Have your family or friends told you to stay away because they have told you they are too risky? If you have concerns over options then please keep reading.
I understand your concerns.
Options have got a bad name.
If they have heard of options it will probably be because of Nick Leeson and and how they brought down Barings bank.
Even in certain circles of the financial world they can be treated as muck as they are not fully understood.
"Options are very risky.
Stay well clear of those of dangerous things" you will hear the uninformed say.
Well for you to make up your own mind on this subject you must understand the difference between the meaning of the words Risk and Risky.
What's Risky? This is an example of Risky; asking a 15 year old boy who has never driven before..
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and who has just had two large vodkas, to drive you home in your shiny new Ferrari.
Now that is obviously risky as a crash could easily happen.
Why? Because the boy has been drinking AND he doesn't know how to drive!! Only an idiot would get in that high performance car and ask him to drive home.
What's a Risk? This is an example of a Risk; getting into a licensed taxi and asking the driver with 13 years driving experience to take you home.
Obviously there is a risk that the driver could crash but getting driven home by him is not risky.
It is in fact fairly safe.
You have assessed the situation, determined the taxi driver knows how to drive a car and decided to take a calculated risk that he will not crash.
The same scenario can be applied to options trading.
Options can be dangerous and risky things if you don't know what you are doing - just like driving a car.
If you understand the risks and abide by the rules of the road then options are in fact fairly safe investments that can offer some fantastic rewards.