Resolving to Remember the Value of Options

Given the outstanding performance of the major averages and incredible gains by many individual issues, many investors are once again feeling good about participating in the stock and options markets. One of the most important keys to success is to understand how it was achieved and, more importantly, not letting past success go to your head.

This is a good time to remember to some fundamental concepts of investing.

Know Thyself

A trader is someone whose primary source of income is generated through buying and selling financial instruments. An investor is someone who uses the purchase and sale of financial instruments to increase or save income.

The styles of traders can vary widely. Some of the most successful traders may only actual make a few "trades" a year. Some of the busiest bees (completing hundreds of round turns a day) end up with little to show for all of their buzzing about.

Everyone should be an investor; only a small minority of people should be traders.

Increased access to information, ease of execution and the low barrier to entry created by the Internet have many investors thinking they are traders. This was never more apparent than during the heady years of the bubble market, as many smart people abandoned their steady paychecks for the prospect of limitless profits -- only to find themselves washed belly-up on the margin-call beach.

While I don't think we'll see an armada of such rudderless proportions head out into the treacherous seas again anytime soon, the siren's song of trading for a living will always lure enough souls to sustain itself as an industry and remain one of a timelessly attractive career choice. As the saying goes, don't let a bull market lull you into believing you are a really smart and excellent trader.