Option paper trading is a term used to describe the way we would test an option trading system without using real money. There are some major benefits in doing this.
1. You get to prove to yourself whether the system you have chosen or been taught, is in fact, a profitable one. It also allows you the opportunity to tweak and refine the system and see the financial outcomes without any real risk. This will give you confidence in the system itself.
2. The process of option paper trading "trains" you how to react to adverse market conditions. Part of any good options trading system is the assmption that a percentage of trades will be losing ones. You need to be psychologically prepared for this. If a predetermined stop loss is part of your system then you need practice in accepting losses before you employ your own money.
3. The most successful options traders tell us that 90 percent of trading success is about psychology. You must have the right mindset when making trading decisions. If you adopt the mindset of a gambler, you will know the pain of gambling losses. It is absolutely essential that you approach your trading with the mindset of a serious business person. Every day you will make business decisions based on strict criteria. You will need to be patient and wait for the right setups and confirmation signals so that you do not make the mistake of trying to anticipate the market before it shows you where it's going.
You will need to practice the way you manage your trading capital and use position sizing in a systematic way so that you don't risk too much of your money on any one trade. You may need to make some mistakes in this area and "feel" the consequences of greed or unnecessary risk. Option paper trading is not just about identifying trading opportunities, but also about learning the self discipline that is so necessary if you want to be successful.