"The Shocking Truth About Retail Options Trading." Nate Bear, Lead Technical Tactician, Monument Traders Alliance Hey gang, A whopping 45% of all options trading volume comes from retail traders like you and me. So why has the percentage of traders who turn a profit not changed in decades? Because most of these traders are using options ALL WRONG. I know this for a fact, not just as someone who turned $37K into $2.7 million in 4 years, but because, as folks will see in my next OPEN HOUSE, I coach hundreds of traders every day. I see and hear from them directly, so I know what's missing. And I know how to fix it. Today, I'm going to show you exactly how the pros use options to reduce risk using: - Different options strategies
- Holding positions to hedge others
- Sizing your positions correctly
By the end of this article, you'll understand why options are the secret weapon of savvy traders. And I'll even show you how to get a full week of options trading education without having to pay a penny. The Power of Diverse Options Strategies Let's start with the backbone of smart options trading: using different strategies. Most retail traders stick to buying short-term, out-of-the-money calls or puts, hoping for a big move because they're cheap. But that's like trying to hit a home run every time you're at bat – you're setting yourself up for strikeouts. Professional traders diversify their approach: - Longer-Term Options: Instead of always going for short-term plays, pros often buy options with more time until expiration. This gives your trade more breathing room and reduces the impact of short-term market noise.
- At or In-the-Money Options: While out-of-the-money options are cheaper, they're also riskier. At or In-the-money options cost more but have a higher probability of profit.
- Short-Term Options for Big Moves: I only use short-term options when I have a strong conviction about a big, imminent move. Even then, I keep my position sizes small to manage risk.
By using a mix of these approaches, you're not putting all your eggs in one basket. You can adapt to different market conditions and reduce your overall risk. Now that we've covered strategies, let's talk about protection. Hedging: Your Portfolio's Secret Weapon How often have you traded options while considering what else you have in your portfolio? Most traders rarely do, and it's a huge problem. Just like you learned in Investing 101, you don't want too much of your money concentrated in one area. I face this issue all the time. As a long-biased trader who largely plays momentum stocks, I'm often in bullish trades in similar tech names. That's great when everything is moving higher. But it's a huge problem right now with weakness across the IT sector. To offset this risk, I'll look for a mix of bearish plays in the Nasdaq 100 ETF (QQQ) or similar. In fact, that's precisely what I did with the trade below over the long holiday weekend: Not only did I use this trade as a hedge (which I clearly labeled), but I also took put options that expired several weeks down the road AND were at-the-money…precisely what I discussed in the previous section. This is how the pros sleep easy at night, knowing their investments are protected. With strategies and hedging in place, there's one more crucial element to master. Size Matters: Position Sizing Done Right The last time I held my OPEN HOUSE, I closed a trade for a gain of…no joke…1,129% gain on RILY within just 2 days! So, it might sound hypocritical for me to say that the #1 mistake traders make is to gamble on long-shot plays. HOWEVER…I stand by what I said. There is nothing wrong with taking long-shot plays. I do it all the time. What I don't do is overbet on these plays because they don't work out all that often. Let's say that they only work out 10% of the time. But when they win, they can give you that +1,000% gain. You need to keep your bets small enough to ride through the losses until you hit that winner. But remember, that happens 10% of the time on average. You can have losing streaks that last 20 or even 30 trades (though it would be rare). Nonetheless, you can't let any one or even 20 trades destroy your account. Mathematically, that means I'm usually betting no more than 1%-2% of my total account on these high-risk trades. | 
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