Fault-prone options traders by Jerry Kopf
"The propensity to gamble is always increased by a large prize vs. a small entry fee, no matter how poor
the true odds." —Warren Buffett, CEO of Berkshire Hathaway
Dreams are stronger than reality. This adage is proven daily by lottery ticket buyers who buck odds of 12 million-to-1, hoping to win life's great jackpot. Traders in stock options also make bets, but the nature of their betting is far different from plunking down $5 for a Quik Pik. Where the lottery is a game of pure chance, options are a game of skill and experience. Options players can stack the odds in their favor. The rub here is some very skilled doctors, TV production executives, computer software developers and national baking contest winners — many of whom earn six figures and are notable in their fields — manage to strike out as options players. They might as well be playing a game of chance.
What stops most public players from enjoying profitable expirations? Do they simply fail to learn the basics (for example: types of orders, nuances of exercise and assignment, implementing proven strategies)? Are standard trading rules violated or are poor money management skills the culprit? Do psychological hang-ups trip them? Is it the carelessness of not actually placing stop or contingent orders? Is it the inertia inflicted by back-to-back losses? Or the stubbornness of being wed to a fault-laden strategy?