So, you’ve read this great piece – an article in a magazine, a blog post, or email newsletter in which an experienced options trader, a so-called options trading ‘guru’, shares a trading strategy that has worked well for him or her. And, you wonder – how much can I trust this article? If it were really that good, would he be sharing it? What axe does she have to grind? And, you doubt!
If you can, set your skepticism aside for a short while, and read on. There are legitimate reasons why experienced options traders might share their secrets. The first 2 listed below benefit the options trading community at large, while the third benefits that options trader who shares his or her secrets.
More Options Traders = More Liquidity in the Options Markets
Simply stated, the more options traders in the market means that the bid-ask spread for the option being traded will be ‘tighter’. For the options buyer, this means being able to buy the option while paying less than if the bid-ask spread were large. For the options seller, this means being able to sell the option at a higher price than if the bid-ask spread were large. The ‘tighter’ bid-ask spread is something every experienced options trader loves and looks for when trading options. Hence, if she writes a great article that entices more folks to begin trading options, she has nothing to lose and much to gain. For the mathematically inclined, see ‘Why Liquidity is Important’ for a more detailed explanation of how increased liquidity benefits the options trader.
Options Trading is a Two-sided Market
If you want to buy something, there needs to be someone to sell it to you, and vice versa. Experienced options traders recognize that options trading, like trading in general, necessarily requires a two-sided market. If they are to remain viable and successful trading options, the more people that trade options the more opportunities they have to make money in the market. Since options are ‘derivative’ instruments (meaning they are based on or ‘derived’ from some underlying financial instrument), it helps the options trader to have more people trading options – since, people invariably cannot agree where the markets are headed. One only needs to watch TV and listen to the ‘talking heads’ to realize that for every one person who thinks the market is headed higher, there is someone who thinks it is headed lower. Either way, for the options trader, there is money to be made – as options allow one to bet on movement to the upside and downside at the same time, quite unlike stocks where one has to choose to buy (if one thinks the market is headed higher) or sell (if one thinks the market is going to fall). See ‘Options Trading Strategies’ for a simple primer on options trading strategies.
The Universe Rewards those who Share
Here is a little known secret for all those who desire wealth – ‘Those who give receive’. Some of the greatest philanthropists in the world are people with the greatest wealth – for example, John Templeton, Bill Gates, Warren Buffet, etc. While it might be tempting to argue that they can give because they have great wealth, the opposite is more likely the case – they have great wealth because they give. They give of their money, their time, and their talent. What’s more, the more they give, the more they seem to acquire. While not everyone has great wealth to give, everyone begins each day with the same amount of time, and everyone has some talent to share, they may not realize it yet. Experienced options traders know that sharing their wisdom, time and talent is the right thing to do – and their altruism will pay them handsomely in the end. The secret of ‘How to Get Rich’ was published over 100 years ago, and has been practiced since Biblical times by people of great wealth.
In conclusion, experienced options traders may have many reasons to share their knowledge, not the least of which are the altruistic ones mentioned above. More direct benefits may also be accrued by them by establishing themselves as an expert in the field and getting referrals from others who might seek their expertise. For the reader, the question to be asked is whether or not the article written has some nugget of wisdom that can make them wiser and help them trade better and more profitably. A good tenet to follow is if one can learn ‘just one new thing’ each time, in time one will be a great deal wiser.