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Avoid the Pitfalls

When most of us start trading we have very limited capital. That leads some people to options in search of leverage, to make money more quickly. I cannot over emphasize how bad of an idea this is. It combines 2 of the most potent traits that lead to most trader's downfalls: limited capital and limited experience.

Options are great tools for active traders and are one of my more commonly traded products. However, for traders in their embryonic stages <$50K, the number one objective is capital preservation - not trying to compound a small account using leverage. The propensity to turn a small account into your retirement, replace your income, or other aggressive financial goal is minuscule (although not impossible to be clear); whereas the probability of turning a small account into an even smaller account as a new options traders is incredibly high.

I firmly believe one of the best ways to start trading options is via the covered strangle in an index or sector ETF, while continuing to save aggressively and papertrading the litany of structure that exist. This will save you money, build the skillset, and avoid portfolio drawdowns. It's not sexy, but trading needn't be. Trading is about making money, so we can then take that money and do the fun things.

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