Options Myths That Lead to Losing Money
95% of options investors do not understand implied volatility
As always, we owe it to our followers. The other day, one of them requested to discuss option selection in an article. Today, we will provide you with a series of basic principles that have accompanied us for over 10 years.
In the world of finance, volatility is a constant and can present interesting opportunities for astute investors. Most investors follow two steps when selecting options:
setting a target price for the underlying asset they want to buy, and
determining the time horizon in which this price will be achieved.
Let me speak to you as a friend. It is already difficult, if not impossible, to accurately predict the first step. Trying to predict both steps is like playing the lottery. Honestly, if that's what you're trying to do with options, forget about it. I know it's what most people do, and we have done it too, but it lacks long-term sense.
Even analysts at JP Morgan working more than 70 hours a week are unable to provide a price. Don't try to do it on your own.
The best alternative available to individual investors is trading indices (due to their liquidity), and the Volatility Index (VIX) has become a popular tool for measuring volatility expectations in the US stock market. But how can investors take advantage of opportunities that arise during black swan events? In this article, we will explore strategies for selecting Out-The-Money (OTM) options on the VIX and capitalizing on these high-volatility moments.