Gambling is what the majority of people think of when they hear the phrase "option trading.
" And this comparison is appropriate in many cases -- especially if a person is trading without discipline.
But to say trading is like gambling in all cases is too broad of a generalization.
With the proper training, an option trading practice can be run like a business.
Example: If you were a business owner, you would be most interested in cutting your losses, maximizing your profits, and limiting your risks.
All of which are true in option trading.
Limiting Risk A business owner is not going to try to sell a product or service that the market doesn't want.
That's too risky.
He's going to sell things that people want.
Similarly, if a stock is not "trade-able," an option trader will avoid it.
That's because it's extremely risky to trade a stock that has no clear trend or pattern.
Getting as Much Profit as Possible Some promotions work better than others.
If a business owner finds one that really cranks, he'll run it again and again to milk as much possible profit as he can out of it.
Similarly, an option trader will stay in a winning trade until it stops moving in his favor.
He'll set trailing stops to lock-in profits if and when the price moves against him.
Limiting Losses Whenever a business owner finds he's got a product that won't sell, he'll try to unload it quickly, even if that means slashing the price and taking a loss.
That's because it's better to liquidate the inventory and use the cash to invest in a better product.
If an option trader finds himself in a bad trade, he'll admit the mistake and cash out as quickly as possible so he can get into a better trade.
Clearly, recklessness is dangerous in both business and trading.
But with preparation and the right attitude, option trading can be run just like a business.