By: Tim Melvin
One of the most dangerous endeavors that individual investors and “wannabe” traders can engage in is options trading.
Stock and index options bring with them a degree of leverage and time restrictions that have the capability to blow up an account in pretty short order, something that happens on a pretty regular basis. It is hard enough to pick stocks that go up, but to do so in a fixed time frame is even more difficult. To top it off, if you pick the wrong strike price you can get the direction and timing right and still lose money.
The individual trader is trading against large institutions with pricing, modeling and trading capabilities that are far beyond their own. All too often the retail trader's role in the options market is to provide lunch money for the trading desks and market makers.
Start With A Company's Business Valuation
There is a way that individual investors can use options to earn higher returns and add to the overall return of their current portfolio. This strategy takes advantage of the fact that most option traders think only about the value of the option and not the value of the underlying business.
At the same time, most value-oriented investors are not fans of options, as they view it as a high-risk leveraged trading activity. We can take advantage of these two groups' lack of interest in each others strategy to use options to enhance a value portfolio. Continue reading "2 Tips To Find A Valuable Options Strategy"