Turning Options trading into more than a hobby

There are many reasons why people choose to trade Options, such as to generate extra income, to hedge their risk or simply because they enjoy trading and are interested in the markets. There is a difference between trading for fun and doing it on a more professional level, and whether you’re an Options beginner or an experienced trader, you can turn Options trading into more than an after-hours hobby.

If you’ve been playing the ASX Options Games, by now you would have a general understanding of how trading Options works and the strategies used to make a trade. The game allows you to paper trade your way up the ladder and is the perfect playground to develop your trading knowledge and skills. If you’re yet to start playing – and let’s face it, you’re missing out – then let’s catch you up on some Options basics.

Options are often described as derivatives, as they derive their value from an underlying asset. An option is a contract that gives the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date. There are a variety of trade strategies that can be employed in accordance to bullish, bearish and sideways market conditions.

When it comes to taking your Options skills and passion to a more serious level, there are a few considerations to keep in mind.

Firstly, it’s good to start with markets that you’re familiar with and build confidence in your understanding of that market. A key tactic is to monitor the market data using stock screeners and implied volatility rankings. Focus your trading strategy on logic and data, and resist the urge to trade based on emotion or “gut feelings”. While it’s difficult to completely remove emotion from the equation, it is important to have a system to help manage it so it won’t cloud your judgment while trading.

Be sure to diversify your portfolio and avoid putting all of your eggs in one basket. Although there is always some risk involved for each trade, you can manage your risk level through a strong diversification plan. Spreading your strategies to account for different market conditions can also assist in hedging any risk.

One of the most important things is to have a solid trading system with rules that allow you to trade in any market conditions. Setting up a system, following it and start treating trading like a business. You aren’t meant to win every single trade, that is simply not possible. Instead, your reliance on your system will make sure that in the long term, you are set up for success. Just like if you were running a business, you may not make a profit every single day but you know that over time, your business as a collective will succeed and that is what sets apart a hobby trader from someone taking it to the next level.

*Past performance is not a reliable indicator of future performance.

*Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au and the relevant Product Disclosure Statement first.