Sometimes the market has an element of gambling about it, but
it is not pure chance, if you understand the trends that are
pushing the numbers around better than the market. What exactly
the market? Unfortunately, the average investor is not the same
as the market; studies show that the most savvy investors have a
disproportionately high degree of influence over a stock's price.
This is initially counterintuitive, but it makes sense if you
think of stock trades as if they were
. Over time, the savviest investors pick up more followers, just
as the most popular Twitter accounts do. Active traders tend to
jump in the same direction as the savviest investors while
ignoring the trades of Joe Nobody, even when the trades are
otherwise the same.
The point is that you are
in competition with the market's shrewdest players. If you so
much as dip your toe in the market-even in the shallow end-you
will soon find you are swimming with the sharks, and the price of
every stock has been weighed five times by each of them before
you ever see it.
Ah, but have you ever looked at an options chain? A typical
stock has dozens, nay, scores of options. Many have
and each of these trades on the open market, just like stock.
Each has a bid and an ask, just like stock. But unlike stock, it
is impossible for any investor, no matter how shrewd to keep
track of all of them at the same time. All we have to do is find
the ones that offer the greatest realistically achievable
potential gains-and then check to see if the buy price makes the
option worth the high risk. In other words, we are looking today
at the incredible potential of speculative option trading.
Speculative option trades only have so much upside potential
because they are
investments. (I know you know that, but you know I have to say it
anyway.) It may not seem like there is a unifying theme here, at
first, but stay with me.
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