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Types of Options Traders

Posted by Pete Stolcers on February 26, 2010

Option Trading Question

Describe for me the different types of options traders.

Option Trading Answer

If you are looking at getting into options trading, then you should know that there are four different types of options traders. These include the long-term traders, the medium-term traders, the short-term traders and the day traders. For each of these different types of traders, there is a distinct options trading strategy and a whole different set of rules, strategies and ways of doing things. As a new comer to the trade, you should figure out which kind of a trader you would like to be, as well as which one you can afford to be.

Long term traders are the ones who hold their shares for one or more years. This can include future option trading and requires a great deal of patience on the trader’s part. It can be nerve wracking when you see the market changing and you know that you need to leave your options alone for another few months to a year, but the payout can end up being quite substantial which is what attracts many traders to this type of option trading.

Medium term traders are the ones who hold their stock anywhere from one to six months. These can include realty trading and are a good mix between the long term and short term trading strategies.

Short term option traders tend to hold their stock for a week but have been known to hold them up to a month. This is a much faster paced way of doing options trading and you really have to stay on top of what is going on in the market so that you can make quick decisions if you end up trading this way. This tends to be the way that a lot of the new options traders start out because you can quickly change things based on how you are feeling the market is about to go.

Day traders are, as you have surely guessed, options traders who buy and sell the stock in the same day. This is an incredibly fast paced environment and you really have to keep on the ball.

How do you do your options trading? Which type of trader are you?

Option Trading Comments

  • On 02/27, Don Avirett said:

    Pete, thank for your honesty concerning the difficulties of option trading.  I have traded stocks but not options.  However, you’re statements concerning only the top 5% of options traders are successful and it requires 10,000 hrs of practice have just about totally discouraged me from trying options at all. Actually, if what you say is true, then it seems that no one but full time professionals should even attempt it.

    Thanks, Don Avirett

  • On 03/03, Pete Stolcers said:

    Before you can become a good option trader, you need to become a good stock picker. Many people have already honed that skill and the extending that to option trading is not that daunting.

    The success rate for people who want to jump into option trading full time is very low. It is higher during upward trending markets, but eventually, those traders get shaken out. It is important to spread your capital out so that one trade can’t make or break you. It is also important to be well capitalized.

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