How do you lose money trading options


Option trading can deliver exceptionally high returns with very limited risk if you have a disciplined approach. There are two very good reasons why most retail option investors lose money: Traders lose money because options are a depreciating asset. This means that options lose value with the passage of time. Since options lose money with the passage of time, the purchasers of options are at a mathematical disadvantage; they lose money with each passing day that the security underlying their option stands still.

While it is not impossible to be profitable on any trade despite this mathematical disadvantage, it is a statistical impossibility to be profitable over time. It is fairly easy however to offset the time depreciation element in options by setting up your trades properly. I will show you below how to offset the time depreciation aspect of options.

Most traders are too eager to trade. The most successful traders are the ones who know when to sit on the sidelines and pick their spots. Patience is the key to making very substantial profits, and doing so on a consistent basis. Above, I mentioned that I would show you how to offset the time depreciation element of options.

To offset time depreciation, I simultaneously buy and sell options. This type of trade is known as a spread trade, and not only reduces the time depreciation of the options purchased, but also reduces the overall cost and risk of the trade to you.

Below is the most recent options spread trade recommendation utilized at PatientTrader. However, let me explain the instructions to you in more detail. Second, the breakeven point that point how do you lose money trading options you how do you lose money trading options profit on the spread trade is with the XEO trading at You calculate the breakeven point on a trade by taking the strike price of the options purchased and subtract the net cost of the trade 4.

On the spread trade, the breakeven point is calculated as follows, — 4. The above description explains the benefits of using how do you lose money trading options trades when investing with options. Utilizing the spread trade allows the investor to how do you lose money trading options the time depreciation characteristic of the options that typically works against the investor.

Most investors with options employ a strategy of simply buying either call or put options. Charles Sachs Editor PatientTrader. At Connors Research, we are using it as an overlay to many of our best strategies to make them even better -- now you can, too. The Connors Group, Inc.