Option trading is how investors can speculate on the future direction of the overall stock market or individual securities, like stocks or bonds. Option contracts give you the choice—but not the obligation—to buy or sell an underlying asset at a specified price by a specified date. There is profound confusion about Option Trading and there are many myths about it. In this article, we will be bursting some Myths & Realities of Option Trading and will explain things important for you to know before getting into Option Trading.
Option trading are tradable contracts that investors use to speculate about whether an asset’s price will be higher or lower at a certain date in the future, without any requirement to actually buy the asset in question.
Nifty 50 options, for example, allow traders to speculate as to the future direction of this benchmark stock index, which is commonly understood as a stand-in for the entire Indian stock market. At first glance, options seem a little counterintuitive, but they’re not as complicated as they appear.
3 Myths And Reality Of Option Trading
1. Option Trading Is Not An Investment Option
It is like a job from which people harvest income and then invest in other investment options. Option Trading is not an investment option itself. Rather, it is a source of income to create more wealth by investing in various other instruments like Equities, REITs, Mutual Funds, Bonds, NFTs, etc.
Therefore, the comparison of Option Trading with other investment instruments is itself null and void.
It is not an alternative to Equity, REITs, NFT, etc. One can work as an Option Trader, earn money and then invest it in any investment tools
2. Part-Time Job
The most dangerous myth people have about Option Trading is that it can be managed along with working a full-time job or running a business.
NO! Option Trading is not a part-time job, instead, it is a full-time JOB.
One has to be active in active hours which is approximately 6 hours. And after that too, one needs to do research, and look into the Candlestick pattern, Price Action, Elliot Wave theory, and other theories. You need to invest yourself completely to harvest a handsome amount of money from it.
It can be used alongside a job or business only if you want to develop a skill. But income will only arise if you actively invest yourself.
Option Trading is not a passive income.
3. An Easy ‘Side Money’
Suppose, you decided to open a manufacturing unit of any kind and did. Do you expect to be on top in that industry the next day? NO, right!
Just like that earning from Option Trading is also difficult.
As our founder says, ‘ You have to fall in love with the process, only then the results will fall in love with you.’ It is important to invest yourself in the process of Option Trading which is long and complex. Option Trading is not a ‘Get Rich Overnight’ scheme. It has to be your main source of income.
Therefore it is safe to conclude that Option Trading is a full time job, for earning active income and is not at all an alternative to investments.
Watch this video by CA Nitin Kaushik to understand Option Trading better and in detail.
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