So you bought some stocks thinking you were the next Gordon Gekko, but it turns out you’re more the Charlie Sheen character at the end of the movie when he loses it all? Then it’s time you get into options, the safer alternative with far less risk, and lose money in those instead.
Here’s how it works: it’s almost like buying a coupon for a stock, so if it goes your way, you cash it and make money, but if it goes the other way, you only lose that initial “deposit” that you dropped on the option contract. That means instead of losing thousands on a bad investment, you only lose maybe hundreds… don’t worry though, after a while you’ll still wind up at the same end result, it just takes longer.
Wait, but you like to short stocks instead of buying? Good news, there’s something called a “put” option. This lets you still bet against the market, but if the stock soars, you won’t go negative like you usually do… You’ll still lose plenty, just not as much.
Options are like the market’s fun way of saying, “We know you’re bad at this, don’t worry, we gotchoo.”
Now, let’s get down to it. When you go to buy an option, you’ll see a range between what people are willing to pay for the option, and how much the current owner of the contract is asking for — it’s set up just like buying securities, making it super easy to transition into this other way of losing money. And to further aid your transition into options, as soon as you purchase that contract, it’ll plummet below what you paid to ensure you still lose, just like with regular trading.
One of the wonderful aspects of options is they naturally lose value over time, so you get to watch your contract gradually become worthless over the course of its life. When you buy a regular stock, if it goes down, you can try to wait it out and see if it comes back up, but with contracts, they always expire, dwindling down to the inevitable $0 — it’s like buying up penny stocks that go bankrupt and get de-listed, one of the preferred ways for people like you to lose your money.
So, there it is, the basics of options trading. Now you can ditch traditional day trading now, and start losing money in options instead!