Originally Posted by Olav23
I'd like to play around with some ideas before actually commiting real capital.
Paper-trading options is like playing paintball-- neither one gives you the experience it takes to survive the real thing. Even worse, it probably gives you a sense of false confidence. You think you understand the risks but you don't really have to pay the penalties, and your adrenal glands never really respond to paper trades like they do to the real thing.
In fact, paper trading is probably worse because after you reap the benefits of the real-world experience you'll probably still be alive and have to recover from the debt...
Here's a little thought experiment. Let's say that you're a value investor in the best Graham style, a fundamentalist who knows his way around financial reports & spreadsheets, you've survived volatility of 40%, and you've spent a two-decade working career learning how to recover from the stress of scaring yourself to death. Armed with this background & experience, you decide that shorting stocks is just value investing in reverse-- sell high, buy low. You read up on the subject, short a few stocks, and start feeling confident. Your keen research identifies that KMart is horribly overvalued at $77 so you short it. Over the next two months the rest of the world stubbornly refuses to recognize your prescience and it rises to $90, but you're familiar with this phenomenon and you stay the course. Maybe you even short more.
One morning you wake up and find that KMart is buying Sears and the KMart shares are trading at $118 with significant upward momentum.
How do you feel? What do you do now?
Try Marcel Link's "High Probability Trading" for the stories of guys who paper-traded in the manner you're considering, learned everything they thought there was to know, and then were quickly relieved of their asse(t)s.