One of the Biggest Mistakes Option Traders Make

Use these tips to reduce your risk. [Jeff Clark's Market Minute]( One of the Biggest Mistakes Option Traders Make By Jeff Clark, editor, Market Minute Most people say option trading is risky. Novice traders often don't take the time to learn the right way to use options. They jump right in – thinking, “I got this.” They gamble, blow up their accounts, and then walk away penniless and swearing off options forever. Even experienced traders sometimes get caught up in the allure of fast gains. They overleverage their positions – take a bigger position size than they should – and then take a hit. All the option traders I know, including myself, have blown up their accounts at least once. But it's not the option that's risky… It's the strategy. And when used the right way, options are far less risky than trading stocks. Recommended Link [Today: Get Silicon Valley Insider Jeff Brown’s Top 10 Tech Recommendations for 2021 for just $4.90 Each]( [image]( Only valid while special offer lasts. [Click here to get the full details.]( -- You see, most people use options the wrong way. Most people use options to increase leverage… To get more “bang for their buck.” In other words, most people use options to increase risk. That's wrong. That's the exact opposite of what options were designed for. The options market was created so investors could reduce risk. Options allow investors to hedge their positions… And to risk much less money than they would buying a stock outright. Let's say you want to buy stock in Company X. It trades for $10 a share. You could put up $1,000 to buy 100 shares… But you can control the same amount of stock with one option contract. You can buy a contract for, let's say, $50… And leave the other $950 in your account. If Company X's stock goes up, you'll make money. If the stock goes down, the most you'll ever lose is that $50. That's a 100% loss… But it's a lot less than potentially losing 20% or more of the $1,000 you risked buying the stock. Free Trading Resources Have you checked out Jeff's free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. This is a simple example. And it's the simplicity that proves my point. Options allow you to risk much less and profit just as much as buying stocks. But that benefit disappears if you overleverage the trade and take on a larger position with options than you would otherwise take with the stock. That's the biggest mistake most novice option traders make. Instead of replacing a 100-share purchase with one call option, they take the entire amount they would have allocated to the stock and buy a much larger position with the options. [This one stock could be the game changer you’re looking for]( Rather than buying one call option for $50 and leaving the remaining $950 in the bank, novice traders take the entire $1,000 and put it into buying more call options. They end up buying 20 call options to try to get more bang for their buck. What would have been a 100-share purchase has turned into control of 2,000 shares. Instead of using options to reduce risk, they've increased their risk 20 times. Losing 100% on an overleveraged trade would be a disaster. And it's why most folks think option trading is dangerous. But it's not dangerous if you trade options the way they were originally intended… As a way to reduce risk. Limit your option exposure to control just the number of shares you would normally purchase. Leave the rest of the money in the bank. Then it won't be so bad to lose 100% on an option trade. It will almost always turn out better than what you could have lost on the stock. Best regards and good trading, Jeff Clark P.S. At the end of yesterday’s Market Minute, my colleague Eoin Treacy discussed his thoughts on the movement in bitcoin, Tesla, and the tech sector in his second presentation of Eoin’s Insights. His thoughts on the market will be featured every Friday so don’t forget to tune in. If you missed it, you can [click right here to watch](. In Case You Missed It… [Trading Legend Shares His Latest Breakthrough]( For the past 36 years, trading legend Jeff Clark has shown people from all walks of life how to make money in the markets. Retired stock brokers… presidents of companies… people with almost no financial experience… and everything in between. But he hasn’t done it the usual way… His method is different. It’s unlike anything you’ve probably ever seen before. [Get the details in this new interview.]( [image]( Get Instant Access Click to read these free reports and automatically sign up for daily research. 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