Secret 18BEWARE OF INERTIA
К оглавлению1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1617 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101
102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118
119 120 121 122 123 124 125 126 127 128
Another problem with expensive options is that almost all
investors suffer from inertia. When you own expensive options,
you should have a stop-loss price on the underlying stock or futures
price. If that stop-loss price is hit, you should sell your option
immediately.
However, most investors do not use stops and do not like to
take losses. Consequently, when the stock makes the wrong move
or doesn’t move at all, the option trader watches his expensive
option fade away.
As one of my students once said, options (unlike stocks) are
like melting ice cubes. They depreciate as time passes. With stock
you are given a second chance; you can wait for the stock price to
return to profitability. Inertia works in your favor. However, with
options you are not given a second chance. For option buyers,
time is your enemy. If the stock price moves against you, you
must act or you will see the price you paid for that option melt
away. Ninety percent of all investors will not act, and you are
probably in that category.
The big advantage of cheap options is that you have an automatic
stop-loss. If the stock or futures price does not move according
to your predictions, the options will expire and you will
lose the small amount you paid for the option. Then inertia will
not hurt you very much.
Another problem with expensive options is that almost all
investors suffer from inertia. When you own expensive options,
you should have a stop-loss price on the underlying stock or futures
price. If that stop-loss price is hit, you should sell your option
immediately.
However, most investors do not use stops and do not like to
take losses. Consequently, when the stock makes the wrong move
or doesn’t move at all, the option trader watches his expensive
option fade away.
As one of my students once said, options (unlike stocks) are
like melting ice cubes. They depreciate as time passes. With stock
you are given a second chance; you can wait for the stock price to
return to profitability. Inertia works in your favor. However, with
options you are not given a second chance. For option buyers,
time is your enemy. If the stock price moves against you, you
must act or you will see the price you paid for that option melt
away. Ninety percent of all investors will not act, and you are
probably in that category.
The big advantage of cheap options is that you have an automatic
stop-loss. If the stock or futures price does not move according
to your predictions, the options will expire and you will
lose the small amount you paid for the option. Then inertia will
not hurt you very much.