you actually made an excellent point yourself: It comes down to finding the strategies that work for you yourself. Writing options outright is in my opinion a terrible strategy, especially when one tries to make a living from that. Sooner or later the lightning strucks and you give all back and then some. When you want to use options to express a directional view then spreads are definitely the wrong choice. I find it funny how some guys say that almost nobody can pick direction but then they recommend i.e. spreads and list a whole lot of conditions that need to be met to make the spread position dominate others, performance wise. Isnt that contradicting? Again, each strategy has its place, but from what you wrote below I would also rather put on a outright call or put position. You can reduce size but thats more a function of your money and risk management than picking the right strategy. You could also play the skew by putting on a "risky" position which you could either run outright or initially delta hedged. The profit potential is however limited so is the risk vs an outright call or put position.
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Options question....
- Thread starter jsv416
- Start date
Quote from jsv416:
I should just stay away from what i dont understand.
That's true.
But, there is no reason not to make the effort to understand and then decide which is best for you.
One real problem with buying options is you never know if you are paying a reasonable price. It's the current price and some believe that it must be a fair or reasonable price.
Helpful hint: Sometimes the prices are so high that buying them makes succeeding so much more difficult. If you can learn a bit about implied and historical volatility, at least you can avoid overpaying for options.
When bullish, if option prices are too high, you can still play by selling put spreads - limited profit, but better than sitting on the sidelines when you have an opinion on a stock.
If you are especially confident in your market timing and directional skills, then you will do very well buying options.
Mark
Quote from IluvVol:
I don't 'advertise' my courses. I mention my blog because it is a good place for beginners to pick up some useful tips.
I list my website for the same reason.
I list my book - infrequently - because it's a good book for beginners.
I teach because I like doing it. My teaching is primarily writing. I hold very few seminars.
I did not leave the exchange with a huge fortune because of lack of discipline.
I made money, but not the kind of money that I should have earned.
I have all the discipline I need now and if I had followed my teachings, I would have left the CBOE with a fortune.
I would never retire to an island. BORING.
I don't talk about my trading profits. What I said was that I make enough money selling option premium to make it worth my time. That's all.
What I teach is RISK MANAGEMENT. If a trader cannot master that, then there is little chance for success. I don't tout any specific strategy as a goldmine. In fact I don't believe there is any foolproof strategy. Success depends on knowing how to stay in the game and collect cash as time passes.
" No successful guys ever learn to trade by primarily earning premium"
Clearly you have no evidence of that from the small group - even if it's a large group - of traders.
The problem with selling premium is that too many lack the ability to take losses in time to prevent a disaster. Too many sell naked options. Too many just close their eyes and hope. These traders never learned an intelligent method for trading.
I've seen backspreaders go broke as often as naked option sellers. It's all risk management.
Mark
I'd prefer to end this discussion. We see things differently and that's all there is to it.