3 Responses to “How Come You Lose Money By Option Trading?”

1. Wordpress Autoblogging Plugin on December 25th, 2009 at 10:19 pm #

   In options trading, even if you don’t execute the order, you would have incurred the cost of the option itself, like an insurance premium. Whether you claim your insurance or not, you still pay the premium, right? Basically, you lose that premium if the trade does not work out but nothing more than that. In futures trading, you will lose money for as long as the stock go against you, which makes it a lot more risky. To find out more about the differences between futures trading and options trading, visit the link below.
2. WP Autoblog Software on December 25th, 2009 at 11:10 pm #

   Simply it is a zero sum game. If you make money, someone else losses that money.
   You pay $2 for a put option (to force someone to buy it at the strike price), your net cash flow is: < $2>
   Someone else Receives your $2 and is obliged to buy the stock, NCF +2
   If you would lose money by exercising, you wont, so then they keep the $2, and you lose the $2.
   Thus, if the option expires worthless, depending on what side of the transaction you are, someone loses, and someone wins.
   Forwards, you have NO initial cash outlay, but must do the transaction at the specified date.
   Futures are the options, where you buy the right to execute or not the trade.
   So to answer your question; how come you lose money in option trading?
   You only lose/gain your initial cash outlay/receipt if it expires worthless.
   Add/subtract any gains/losses incurred if it does not expire worthless from the execution of the option.
3. poison on December 26th, 2009 at 1:58 am #

   I would say option trading is very risky now a days … With all the financial slow down, it hard to see options go up.
   My recommendation would be to try online forex trading. Volatility is huge and you are never dependant on any company staff ability to pull it off.
   eacehttp://www.forexnode.com