Category Archives: Market Myths

You don’t suffer a loss until you sell something

This one is a peach.  Here is an example:  If you bought a stock at $50, and the stock went up to $60…if you called your broker, they would tell you that you made $10.  BUT! If you bought that … Continue reading

Posted in Market Myths | Leave a comment

Option sellers make more than option buyers

I have never seen any solid statistics supporting this statement as fact.  Think about this, if selling options were better than buying them, who would ever buy them?  Remember that it takes two sides for every trade (a buyer and … Continue reading

Posted in Market Myths | Leave a comment

Buy vertical spreads in low volatility and sell them in high volatiltity

This myth is perpetuated by seminar companies that do not really understand options.  When trading a  (vertical) spread.  You have an option you are buying, and an option you are selling in the same month.  By virtue of that, you … Continue reading

Posted in Market Myths | Leave a comment

80%-90% of options expire worthless

This myth is perpetuated by brokers and the general market.  This myth could not be further from the truth.  Remember there are two types of options (calls and puts).  A call gives the right to buy, and a put gives … Continue reading

Posted in Market Myths | Leave a comment

The reason call options are more expensive than put options ATM (at the money)

It has been a popular myth that the reason that calls trade higher than puts, when the options are at the money, is due to the fact that stocks can only drop to zero for the puts, but can go … Continue reading

Posted in Market Myths | 1 Comment

You will be assigned on a short option if there is $.25 or less time value in the option

Even though this is a myth, it is important to understand that anytime you sell an option you are at “risk” of being assigned.  Not to say you will.  There are specifics to say when you should be assigned.  They … Continue reading

Posted in Market Myths | Leave a comment

Using the Put/Call ratio to determine stock direction

Boy do I love this one.  People use the put/call ratio to determine the direction of a stock.   It is mostly used by stock traders that are uneducated about options.  For those that do not know what this ratio means, … Continue reading

Posted in Market Myths | Leave a comment

The only way to make money in the markets is to buy low and sell high

This is the buy and hold approach.  Most people think that the only way to make money in the markets is to buy low and sell high. There are four primary markets to trade.  1. Bullish markets.  2.  Bearish markets.  … Continue reading

Posted in Market Myths | Leave a comment

Diversification is a good hedge

Let’s first define diversification.  Diversification is when you spread your risk over several different areas.  Some traders use a mutual fund as diversification.  Remembering that a mutual fund is a basket of stocks.  The idea being, if you had one … Continue reading

Posted in Market Myths | Leave a comment

Making profit on Dividends

I have heard the myth that you profit on dividend paying stocks.  Even CNBC has touted this myth.  What are dividends?  They are a payment from the company to the shareholders.  Where does the money come from?  It comes from … Continue reading

Posted in Market Myths | Leave a comment