Options trading remains the most glamorous activity of the financial markets. The common idea is that the options trader is not suffering any pain to make money. If the scalping seems immediately even to a not accustomed eye a profession dominated by frenzy and stress, option trading remains something that lure the audience with a false promise of peace and quiet living. Eventually what is options trading ?

The common tenet is that options trading is something that has to do with volatility and volatility is not something that changes every  minute. Volatility is something that could surely explode in a matter of seconds but usually can stay unchanged for months or even years. So the options trader will make money boringly selling and buying volatility according to that ancient rule by which you should buy at the low and sell at the high. What is simpler than this ?

Another view of options trading consists of something that is wrongly assimilated to betting: if your opinion on a stock or on the market is bullish then you buy the call, if your view of the market is bearish you buy a put on the stock or the market you believe will plummet and you wait up onto to the expiration. And at the expiration or you will find a present or you will withstand a loss which in any case will be not more than the ticket you bought to jump on the bandwagon. There is nothing falser than this. Or at least you can say that these two ideas of what is options trading belong to the large army of the losing traders, which accounts for at least the 99% of the market participants.

Conversely it is really interesting to follow some seminars around Europe and to read some books that teach exactly the opposite: in order to make money you need to sell options not to buy them. This is the best way to make money with options. A quick question: when you go to your insurer company and you insure your house or your car who is making the most money from the deal, yourself or the insurance company ? Obvious reply, the insurance company will make the most of the money from the deal and this precisely why it will sell you an insurance that is an option and conversely you will lose money because in any case you will buy the insurance contract that is an option.

So professional traders on the pit make their living selling options and checking prices during all the trading session in order to prevent to be wiped out by extreme adverse movement of the prices. No quiet living, not peace and relax for them. And the biggest part of the work is to select those options that deserve to be sold, a task that could account for at least 50% of the work for an options trader. And the second task will be to try to find a way to hedge your short positions buying the same options with a longer expiration and the same or different price strikes.

Finally the rest of the day will be busy with an intense watching of the markets in real time. This is the bloody life of an options trader. It happened to me to follow a seminar done by Romain Delacretaz, a French trader teaching the real professional methodologies and I am so satisfied that I would recommend it to the readers. Romain Delacretaz is the president of the Institut de la Bourse in Paris and a world-known trader. After the seminar you will stop thinking that trading options is an easy job !


About Author

Emilio Tomasini is Chief Editor of the Italian edition of TRADERS’ MAGAZINE (www.traders-mag.it), the leading monthly publication in Europe for trading and investment, and since 1999 he organizes the TRADERS’ CUP the most important real money European trading competition (www.traders-cup.it). His personal weekly free newsletter L’Indipendente di Borsa (www.indipendentediborsa.it) is one of the most reputable Italian financial media and counts more than 100.000 readers. His website in English is www.emiliotomasini.com

Leave A Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.