Myths on Options Trading (Part II)

1. One loses money on a long straddles for one and only one reason - i.e. because the underlying does not move.

Does the trader ever bother to understand how vega will hurt or help a long straddles?
Does the trader know how gamma works to allow him/her to profit from a long straddles?

2. Options are very risky .... they are like gambling

Do we know that options can be used as a protective tool, thereby allowing us to protect our valuable assets?

3. Options are not easy to trade

Well, are we blaming others or ourselves if we are not committed to trade options properly. Are we complaining about educational providers who are selling expensive courses? Are we constantly looking for the Holy Grail, i.e. the free and most effective resources? Does information come free every time?

4. Some traders believe that the Put/Call Ratio is a measure of market sentiment. It is also believed to be a contrary indicator.

Well, do we ignore synthetics completely? Selling a put is equal to long stock and a short call. Buying a call is synthetically the same as buying the stock and a put. So, if you already own the stock, and you buy a put to protect it, the PC Ratio will go up, ceteris paribus. Does it mean that you are bearish?

More to come!!