The latest global market crisis caused many merchants to lose their wealth. More and more people refer to options or derivative trading as a whole as games. It is likely that many alternative traders who had their positions go down to zero will take the entire account with them.
Did the equity investors do something better?
Many pensions and individuals had great positions on GM before the crisis of 2008 began and intends to keep it as investment rather than speculation. But look at where GM is now ... hardly a dollar. Did not these investors lose their shirt too? Should not stock trading or investing in shares also play?
So what are you playing?
Basically spending money on the hope that it will work well when you can not do anything about how the price movement of that movement is moving. Depending on an uncertain future result to make a profit or loss are games. This includes equity investments option trading futures trading warrants etc. How different are the horses horses who analyze the horses performance and then put their expectations on a result?
Accept the fact that betting on an uncertain future result with money on the line is GAMBLING is the beginning of trading and investment.
How did high poker poker players play a profession and a life in a game game? The real secret is risk management. Risk management is what takes out alternative trading out of the realm of the game to the investment area.
The beauty of option trading is that the risk can be hedged and the position can be adjusted to any risk management needs. To get the simplest example do not buy more purchase options or sales options than the amount youre willing to lose. See? Alternative traders who can not accept the fact that trying to predict future results is that games that like to secure profit will put all their money in one single position and lose their shirt. And then crying about alternative shopping is to play. Yes alternative trading is a game in the sense that future results can not be predicted. It is a proper risk management that takes out alternative trade out of the gaming area and into the realm of investment and trade.
In fact with the right risk management trading options can be much less than buying shares than buying shares.
This is because you can structure alternative strategies as profit in more than just one direction while buying stocks will only earn money when stocks go up. With the opportunity to earn more than one direction the chances of winning are significantly improved the risk is lowered and trading becomes more of an investment than a concert. See?
For example a Call Ratio Spread allows me to win when the stock goes down stagnant or up to a predetermined price. In all 3 directions. How is the exact future result no longer so important for profitability? With a Call Ratio Spread I do not need to accurately correct why the shares go because its unpredictable first and still makes money. See?
Also because of leverage granted through buy and sell options I could control the profit on more shares with less money. By spending money alone Im willing to lose in a trade I can reduce the risk and still check the profit on stocks that will take a lot more money to check.
Now shopping in options is not magic. Alternative trading can be risky without having an overall understanding of how it works and how each option strategy works but when reaching skill level trading in alternative trading becomes more and investing than playing with the right risk management strategies in place. The point Im trying to get to you in this article is as follows. Everything that is due to an uncertain future result is game and it includes option trading and equity investments. However with appropriate risk management and hedging strategies option trading can be much less dependent on whether the future performance is more accurate than investing in stocks and thus making more of an investment than playing.