SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Are you a Hedger Or a Speculator?


Many options traders seem to have a problem defining themselves. Repeatedly, we see traders describe themselves as conservative, using options primarily to hedge market risk. But … are they staying true to this definition.

If you think your risk tolerance places you among the conservative trading class, but you trade like a speculator, it means one thing: You are a speculator. The culture of options trading favors swing trading and speculation, over and above the strategically more effective ideal of hedging. Contrarians hedge, but they might also speculate. But a contrarian should be acting based on rational analysis, while the rest of the market moves in unison. Making decisions emotionally. This is why crowd thinking and speculation are so difficult, and why true hedging (based on contrarian principles) works.

A reality check is in order for many options traders. This is especially true because of the tendency to settle in with a favorite set of strategies and forget to change with market conditions. Not every strategy works well in every market. Being able and willing to reconsider the nature of a strategy and of risk itself helps clarify your true risk profile.

Speculators are willing to take higher than average risks, in the belief that bigger profits are just around the corner. Most traders know that most speculators lose more than they gain. In the options market, the risk of acting contrary to your risk profile is ever present. But it is not just that self-described hedgers are really speculators. A greater danger lies in the unwillingness of some to step back and take an honest look at actions.

If you are making speculative trades, you’re a speculator – no matter what definition you place on yourself – and that is something to be confronted. If, in fact, you are a speculator and want to continue with high-risk trades, then embrace the role. But if you do think you’re conservative and want to use options to hedge market risk, it is time to evaluate not only which strategies you employ, but your underlying rationale for entering and exiting trades.

Image result for hedge speculation

As part of this self-analysis, it also makes sense to move beyond the tendency to see yourself as “knowing better” than the average trader. Options traders tend to have a high level of self-esteem, and deservedly so. To trade in this market demands a level of knowledge, experience and plain old guts, more than most traders. At the same time, this self-esteem may prevent you from stepping back and taking an honest look and how, why, and what you trade.

The threat to continued success is not limited to which strategies you execute, or even to whether you are a contrarian or a crowd follower. The great threat is in the blind spot all traders develop once they reach a plateau of confidence. Knowing how the market works and applying that knowledge to selecting the best options and stocks, can lead to an over-confident blind spot, and that’s where the real threat lies.

An action as simple as interpreting a stock chart, applying technical signals to evaluate a trend, and then picking an option based on recognized reversal signals and confirmation, is not really all that simple. The ability to skillfully go through this process is the result of a long learning curve. It points out, however, that possessing the skills and knowledge only opens the door. Once you “arrive” as a successful and knowledgeable options expert, the danger appears. The inability to recognize our own blind spots can exert a subtle but dangerous change in your risk profile, intended or not.

Question your actions considering what you believe to be your true risk profile. If you think you’re a hedger, but you act as a speculator, this self-evaluation is a wise step to take.

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Diversified Leveraged Anchor Performance

    In our continued efforts to improve the Anchor strategy, in April of this year we began tracking a Diversified Leveraged Anchor strategy, under the theory that, over time, a diversified portfolio performs better than an undiversified portfolio in numerous metrics.  Not only does overall performance tend to increase, but volatility and drawdowns tend to decrease:

    By cwelsh,

    • 1 comment
    • 232 views
  • The Best Chart I’ve Seen in 2020

    The best visual aids for learning are often very simple. The chart in this article was created by Paul Merriman, using data from Dimensional Fund Advisors. I primarily use Dimensional Funds in building portfolios for my clients. There are many takeaways from this chart, and I’d like to share a few thoughts that stick out most to me.

    By Jesse,

    • 0 comments
    • 235 views
  • Traditional or Roth Retirement Account?

    When US investors save for retirement, there are many important decisions that have to be made including which investments to use as well as which type of accounts to fund. Tax favored retirement accounts such as 401(k)’s and IRA’s should be utilized to the maximum extent possible because of the opportunity for tax advantaged growth.

    By Jesse,

    • 0 comments
    • 285 views
  • My Favorite Investing Books, Blogs, Papers, and Podcasts

    There are so many excellent sources of investment education available today that I thought a short post about some of my personal favorites could be beneficial. Below are different forms of content that have been particularly impactful to my investment philosophy, and they are not in any specific order.

    By Jesse,

    • 0 comments
    • 576 views
  • Go For Gold! The Business Behind The Dazzle

    The price of gold is often in the news—sometimes it's rising, and other times it's dropping but for the most part, it has been on a steady increase for many years. It is certainly worth more now than it did twenty years ago. When its price is on the rise, we may have thought about the benefits of selling our gold for profit and making some passive income from it.

    By Kim,

    • 0 comments
    • 332 views
  • Using Bullish Calendar Spreads to Profit on MSFT Stock

    A calendar spread is an income trade where the trader sells a near term option and buys a longer-dated option with the same strike price. Usually this is done with monthly options, but it can also be done with weeklies. They are long volatility trades so can be a nice addition to a portfolio as a way to offset some short vega.

    By GavinMcMaster,

    • 0 comments
    • 635 views
  • 3 Principles to a Successful Investment Experience

    Although not an exhaustive list, what I’ll present in this article are three core principles that overwhelmingly stack the odds of a successful long-term investment experience in your favor. These three principles are asset allocation, diversification, and rebalancing.

    By Jesse,

    • 0 comments
    • 442 views
  • Important Tips For First Time Currency Traders

    Diversifying your portfolio is important for all investors, and currency investments are a great way to do that. However, there are a lot of misconceptions and common mistakes that first time currency investors make, and this leads to big losses.

    By Kim,

    • 0 comments
    • 466 views
  • Iron Condors or Short Strangles?

    In my early option trading days, I favored selling iron condors over selling strangles. I thought that selling a strangle was too risky because the potential loss was “undefined”. I thought this made sense because this is what I’d hear from other people that were more experienced than I was.

    By Jesse,

    • 0 comments
    • 2,006 views
  • How To Be A Successful Day Trader From Home

    The good news is that if trading is your passion, then it’s possible to become a successful day trader and work from home. However, it’s not as easy as setting up shop and jumping online. There are specific steps and processes you need to have in place if you’re going to be able to make a living for yourself and have a bright career and future.

    By Kim,

    • 0 comments
    • 608 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs Expertido