For investors looking to potentially amplify their returns while limiting risk, options trading deserves a close look. Today we explore valuable insights from Masi Trades, an experienced options trader who initially struggled with equities before finding her stride in this versatile product.
The Draw of Options After early challenges day trading stocks, Masi discovered options in June 2019 and it immediately resonated with her. “Options just clicked for me. I could make the same or better return with less invested compared to trading shares outright,” she explains. A key appeal was the capped risk of buying options.
“If your contract is worth $250, that’s the max loss you can take,” Masi notes. This contrasted favorably to the theoretically unlimited risk of being wrongly positioned when trading stocks. The higher leverage of options also meant smaller capital requirements to put on trades.
However, Masi stresses that higher leverage cuts both ways. “You can very quickly make a lot of money in a good week, but also very quickly lose it in a day or two if you don’t manage risk properly.”
Understanding Optimal Scenarios While simple in concept, effectively trading options requires mastering many nuances around strategies, greeks, implied volatility and more. Masi cautions that certain factors like time decay can substantially impact premium values and profitability for different option strategies.
“It depends what type of strategy you’re implementing,” she says. “If you’re scalping, some things like theta decay don’t matter as much. But if you’re swing trading, you need to pay attention to how time decay eats into your premium.”
Masi suggests starting by paper trading while thoroughly learning these dynamics before putting real capital at risk. Finding the right strategy fit for your personality type and goals is also crucial.
“I’m impatient, so I chose scalping options to get quick in-and-out trades,” she explains. “But if you prefer less urgency and can handle overnight risk, a swing strategy may suit you better.”
Managing Risk Diligently Even for experienced traders, evolving market conditions demand constant refinement of strategies and risk management practices. Masi faced a particularly tough 2022, admitting her strategies stopped working amid that year’s bear market.
“It took me the entire year to refine what worked versus what didn’t,” she says. “You really learn what you weren’t applying correctly with risk management when the market shifts.”
Masi now adheres to far stricter risk/reward parameters and position sizing based on her experiences. She also monitors her mental state closely, avoiding any trading when major life stressors or distractions could impair her judgment.
“If you wake up and even slightly hesitate about being in the right mindset, don’t trade that day,” she cautions. “Listen to your gut instinct.”
Starting Your Journey For investors intrigued by options but uncertain where to begin, Masi recommends exhaustive education first. Some respected books she endorses include Understanding Options by Michael Sincere and any of the price action titles by Al Brooks.
While no substitute for screen time experience, focused learning can prove instrumental in avoiding preventable beginner mistakes. Masi’s personal journey vividly illustrates both the powerful potential of options trading, as well as the unique nuances and risks to appreciate before deploying vital capital.