How many people have heard this before: “Options are too risky!” Or when you tell someone that you’re going to learn how to trade options and they say to you, “You’re going to lose all your money!” Even when you ask most financial advisors about trading options, they will say, “Why would you want to do that? Options are way too risky” and mention that they are too complicated to use. In addition to all of that, you have brokerages setting all these rules on who and how you can trade options.
However, complexity does not mean more risk. Most people who say these false statements aren’t educated about the process of trading options and how they can, and should, be used. The way you combat these naysayers is to educate yourself with specific knowledge about options. You become the expert! Specific knowledge is one of my top 4 factors of becoming an investor that makes money consistently in any market.
I’ll normally tell anyone who will listen to me that if your broker tells you options are too risky, or too complicated, you should ask the simple question: “Why?” If they answer with a blank stare on their face; a long pause on the other end of the phone line; or say, “People lose all their money, options are not necessary for what you want to accomplish, or you do not need it in your portfolio,” I would look for a new financial advisor. Your answer back to the needs to be, “So, you don’t want to lower the cost basis of my portfolio over time? You don’t want to protect my overall portfolio when markets start to go down? You don’t want to protect my portfolio and gains from over the past ten years when a bear market comes? And, oh, it will come! You don’t want a non-correlated way to bring income into my portfolio? Also, why wouldn’t we want a quantitative edge when making an investment decision?”
All of the above is what you want, and need, to help you make money consistently in any market environment, whether it goes up, down, or sideways. Having options in your arsenal of tools will help make that happen.