Читать книгу Essential Option Strategies - J. J. Kinahan - Страница 9

“How do I get started?”

I hear that question a lot. Many people understand the importance of investing and building wealth but don't know where to turn. Interest rates have been historically low for quite some time, and traditional banking instruments like money markets and savings accounts are not offering much in the way of yields. So what choices exist when seeking returns on one's hard-earned money?

Before I dive into specific instruments, let me introduce the probability concept. There are a myriad of different opportunities available to investors today, and all of them have varying probabilities of success. We can never predict the future with certainty, and so investments decisions are based on expectations about probable outcomes. We might say, based on our expectations, that an outcome is likely, is probable, or has a good chance.

Just like risk and reward, probability and strategy selection are two sides of the same coin. You have no doubt heard the expression, “high risk, high reward.” It refers to the fact that investments that offer the highest rewards typically have the greatest risk. Playing the lottery is an example of an extreme high-risk, high-reward endeavor. There is a very high rate of failure, but a winning ticket would mean a big payoff. On the other hand, burying your life's savings in the backyard is probably a low-risk, low-reward scenario (although risks increase if you bury everything near the family dog's bone stash).

In trading options, and remember, options are simply pricing probabilities, a strategy that has a very high probability of success and a low probability of loss is likely to have smaller potential for profit. On the other hand, a strategy with a small probability of profit should generate a larger potential profit when successful.

In later chapters, we will explore simple probability concepts and ways to compute probabilities for various options strategies. The important point to take home for now is that various investments or strategies are more than just good or bad ideas. Each strategy has a quantifiable probability of success.