There are a lot of variables to consider when looking at buying or selling options. To win at options it takes much more than just playing a hunch.
With option trading it’s not enough to simply be a bull or bear, nor or they the only options in town. The Greeks embedded in all calls and puts force or should cause those would be directional strategists to also contemplate the impact of variables like time decay, implied and statistical volatility and even dividends and possibly interest rates, depending on one’s time frame.
There’s also liquidity to consider when dealing with options. Less than desirable conditions require extra thought as to whether a spread or outright for that matter, is even worth entering into when prices theoretically look promising. Bearing all the fore-mentioned variables in mind will ultimately put option traders well on their way to deciding upon a stronger built position than otherwise.
In the end, attention to those details might lead to the trader feeling confident in establishing an open risk position like a short call or front-spread position. Or maybe it results in deciding upon a limited-risk position such as a vertical or condor. Both types are investing.
It’s true, options might not be traditional stuff by some standards given they are a derivative bet with an attached contract life. That said, given options can act just like stock, control risk in ways that buying or shorting shares simply can’t guarantee, as well as allow for other types of exposure if wanted. Thus educating oneself to those possibilities seems smart.
After rolling up your sleeves and understanding how something like a vertical may or may not react to a volatility crush or what a time spread post earnings might look like; you may find you still won’t use options as your primary investment vehicle. But to suggest calls and puts don’t have a place amongst proper buy points, square box patterns, high level double bottoms and the likes just seems a bit silly given the competitive nature of ever sophisticated markets.
See Investor’s Business Daily for the entire story.
Trading Options: There’s A Lot To Learn
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