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10 Busted Myths of Options Trading

CEOs from top options trading brokerages offer advice

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Myth #4: Option trading will be dead when volatility in the market returns to normal.

The short answer here is — no way. This myth is effectively busted by Wade Cooperman of tradeMONSTER, who told us, “The market’s been growing in volatility for a long, long, long time. The reality is that volatility is here to stay. It will continue, though the VIX may go up or down, but volatility is part of investing.”

Don Montanaro of TradeKing likens options trading and price volatility to buying insurance in Florida hurricane season. “Those of us down here in Florida are hip to the annual hurricane season, and if you go and try and buy hurricane insurance in the middle of a hurricane somebody’s going to charge you more for it than if you [go buy the insurance] in the middle of the winter time when hurricanes are six months away.”

The point here is that while volatility will wax and wane, options trading can be used to make profits in either relatively stable or violently volatile markets.

Options trading will fade out when volatility fades? Myth busted!

Myth #5: Option trading is for older and wiser investors only.

The idea that younger people don’t have enough money or experience to trade options is most definitely a myth that’s being busted every day by the huge influx of individual investors into the options marketplace.

As George Ruhana told us, “We have watched the growth of the options market and the retail option space. And they get accepted more every year. And especially [in] a year like last year where you had some people who had been making money as options investors. The other part of it is that [for] younger people who are much more comfortable with technology and the idea of online investing … options investing isn’t going to be as big of a hurdle.”

George added that although option trading has reached a sound level of acceptance, he still thinks there’s a huge room for advancement. “In the long term, the demographics for options investing are great given that it’s not anywhere near its full saturation level.”

Option trading only for older, wiser investors? Myth busted!

Myth #6: Option trades are difficult to execute and should only be handled by professionals.

The myth that options trades are difficult to execute is a byproduct of that bygone era when user-friendly options trading platforms didn’t exist. The new generation online trading platforms are easy to use, intuitive and contain sophisticated guidance tools that make trades easy to execute and understand.

George Ruhana says, “I think our platform and our options chain is great. That’s because number one, it refreshes, you’re seeing data consistently updated. Two, it’s easy to create spreads and stuff because it’s just right click and do that.”

All of our CEOs extolled the virtues of their online trading platforms, which all were specifically designed to make order execution
as easy as a few intelligent clicks of a mouse.

Options trades difficult to execute? Myth busted!

Myth #7: Option specialty brokerages are good for trading options, but not for trading stocks, ETFs

Although options specialty brokerage firm such as thinkorswim, OptionsHouse, TradeKing, tradeMONSTER and Lightspeed all specialize in options execution, they all are also great platforms for trading virtually any type of security.

All of these firms were designed to handle basic stock trades, ETF trades and mutual funds purchases and sells. In most cases, the low cost trading each of these firms offer makes them very competitive when it comes to trading most types of securities. With these specialty options trading brokerages, you can do all your complex options trades in addition to the easy trades like buying and selling stocks — all at very competitive prices.

Options brokerages are only good for options? Myth busted.

Learn 7 Reasons You Need a Broker Who Specializes in Options.

Article printed from InvestorPlace Media,

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